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
Federal Reserve Bank of Minneapolis
Research Department
90 Hennepin Avenue
Minneapolis, MN 55401-1804
Tel: 612/204-6476
E-Mail: yogo@minneapolisfed.org
AB  - Conventional tests of the predictability of stock returns could be invalid, that is reject the null too frequently, when the predictor variable is persistent and its innovations are highly correlated with returns. We develop a pretest to determine whether the conventional t-test leads to invalid inference and an efficient test of predictability that corrects this problem. Although the conventional t-test is invalid for the dividend-price and smoothed earnings-price ratios, our test finds evidence for predictability. We also find evidence for predictability with the short rate and the long-short yield spread, for which the conventional t-test leads to valid inference.
ER  -