TY  - JOUR
AU  - Campbell,John Y.
AU  - Yogo,Motohiro
TI  - Efficient Tests of Stock Return Predictability
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10026
PY  - 2003
Y2  - October 2003
UR  - http://www.nber.org/papers/w10026
L1  - http://www.nber.org/papers/w10026.pdf
N1  - Author contact info:
John Y. Campbell
Morton L. and Carole S.
Olshan Professor of Economics
Department of Economics
Harvard University
Littauer Center 213
Cambridge, MA 02138
Tel: 617/496-6448
Fax: 617/495-7730
E-Mail: john_campbell@harvard.edu

Motohiro Yogo
University of Pennsylvania
The Wharton School
Finance Department
3620 Locust Walk
Philadelphia, PA 19104-6367
Tel: 215/898-3609
Fax: 215/898-6200
E-Mail: yogo@wharton.upenn.edu
M1  - published as Campbell, John Y. and Motohiro Yogo. "Efficient Tests Of Stock Return Predictability," Journal of Financial Economics, 2006, v81(1,Jul), 27-60.
AB  - Tests of the predictability of stock returns may be invalid when the predictor variable is persistent and its innovations are highly correlated with returns. This paper proposes two methods to deal with the problem. First,we develop a pretest that determines when the conventional t-test is misleading. Second,we develop a new test of predictability that always leads to correct inference and is efficient compared to existing methods. Applying our methods to US data,we find that the conventional t-test is highly misleading for the dividend-price ratio and the smoothed earnings-price ratio. However,we find evidence for predictability using our test, particularly with the earnings-price ratio. We also find evidence for predictability with the short-term interest rate and the long-short yield spread,for which the conventional t-test leads to correct inference.
ER  -