Publication
Predictability of stock market returns: New evidence from developed and developing countries
Stock market return predictability
Average correlation
Financial predictors
International stock markets
2022
2022, Global Finance Journal, 54, pp.100624
Abstract
Existing studies have concentrated on predicting stock market returns mainly in the U.S. market. We focus on the predictive power of the average correlation, an indicator of co-movements of returns on industry portfolios, and estimate a number of regression models using more than 10,000 monthly observations from 18 developed and 9 developing markets. We find that the average correlation is an effective predictor in most markets. This predictive power is not driven by the state of the economy. It is also not sensitive to subsample periods, although it is stronger in the most recent period and weaker during financial crises.