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Document Details : Title: Prediction of Stock Returns Subtitle: A New Way to Look at It Author(s): NIELSEN, Jens Perch , SPERLICH, Stefan Journal: ASTIN Bulletin Volume: 33 Issue: 2 Date: November 2003 Pages: 399-417 DOI: 10.2143/AST.33.2.503700 Abstract : While the traditional R² value is useful to evaluate the quality of a fit, it does not work when it comes to evaluating the predictive power of estimated financial models in finite samples. In this paper we introduce a validated R²v value useful for prediction. Based on data from the Danish stock market, using this measure we find that the dividend-price ratio has predictive power. The best horizon for prediction seems to be four years. On a one year horizon, we find that while inflation and interest rate do not add to the predictive power of the dividend-price ratio then last years excess stock return does. |
