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JOURNAL OF ACCOUNTING AND FINANCE
Predictability of Stock Market Excess Returns With Household’s Obligation Ratio
Author(s): Pedram Jahangiry
Citation: Pedram Jahangiry, (2021) "Predictability of Stock Market Excess Returns With Household’s Obligation Ratio," Journal of Accounting and Finance, Vol. 21, ss. 1, pp. 68-91
Article Type: Research paper
Publisher: North American Business Press
Abstract:
In this study, I test the predictability of stock market excess returns with households’ obligations ratio. Using U.S stock market data, I show that household’s debt service ratio can predict stock market returns at short horizon and over business cycle frequencies. I show that between 1980 and 2016, mean deviations from debt service ratio is a better forecaster of future returns both in-sample and out-of-sample than dividend-price ratio, dividend yield, earnings-price ratio, investment-capital ratio, and several other popular forecasting variables. The results remain significant using quarterly data and annual data.
