Predictable Stock Returns in the United States and Japan: A Study of Long-Term Capital Market Integration
NBER Working Paper No. 3191
This paper studies the predictability of monthly excess returns on equity portfolios over the domestic short-term interest rate in the U.S. and Japan during the period 1971:1-1989:3. The paper finds that similar variables, including the dividend-price ratio and interest rate variables, help to forecast excess returns in each country. In addition, in the 1980's U.S. variables help to forecast excess Japanese stock returns. There is evidence of common movement in expected excess returns across the two countries, which is suggestive of integration of long-term capital markets.
Published: Journal of Finance, Volume 47, No. 1, pp. 43-69 March 1992