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Stock Return Predictability: Evidence Across US Industries

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  • Pham, Quynh Thi Thuy

Abstract

This paper revisits the return predictability pattern in the stock market and investigates whether this pattern is valid across US industries. Using data over the last 91 years, I confirm that value-weighted stock returns are predictable. Moreover, my work establishes a predictability heterogeneity over US industries, in which stock returns are more predictable in sectors with a large average firm size. In light of the dividend-smoothing hypothesis, I show that differences in dividend smoothness potentially drive cross-industry predictive patterns. The findings further suggest that dividend yields are not good proxies for predicting returns in some small industries.

Suggested Citation

  • Pham, Quynh Thi Thuy, 2021. "Stock Return Predictability: Evidence Across US Industries," Finance Research Letters, Elsevier, vol. 38(C).
    • Handle: RePEc:eee:finlet:v:38:y:2021:i:c:s1544612320302646
    DOI: 10.1016/j.frl.2020.101531
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    References listed on IDEAS

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    More about this item

    Keywords

    return predictability; dividend growth predictability; industry portfolios; dividend smoothing;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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