Stock return predictability and the adaptive markets hypothesis : Evidence from century-long U.S. data

Kim, Jae H. and Abul F. M. Shamsuddin and Lim, Kian Ping (2011) Stock return predictability and the adaptive markets hypothesis : Evidence from century-long U.S. data. Journal of Empirical Finance, 18 (5). pp. 868-879. ISSN 0927-5398

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Abstract

This paper provides strong evidence of time-varying return predictability of the Dow Jones Industrial Average index from 1900 to 2009. Return predictability is found to be driven by changing market conditions, consistent with the implication of the adaptive markets hypothesis. During market crashes, no statistically significant return predictability is observed, but return predictability is associated with a high degree of uncertainty. In times of economic or political crises, stock returns have been highly predictable with a moderate degree of uncertainty in predictability. We find that return predictability has been smaller during economic bubbles than in normal times. We also find evidence that return predictability is associated with stock market volatility and economic fundamentals.

Item Type: Article
Uncontrolled Keywords: Adaptive markets hypothesis, Economic bubbles, Economic crises, Market efficiency, U.S. stock market
Subjects: H Social Sciences > HG Finance > HG1-9999 Finance > HG4501-6051 Investment, capital formation, speculation > HG4551-4598 Stock exchanges
Divisions: SCHOOL > Labuan School of International Business and Finance
Depositing User: ADMIN ADMIN
Date Deposited: 14 May 2012 16:49
Last Modified: 17 Oct 2017 14:37
URI: http://eprints.ums.edu.my/id/eprint/4139

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