Valuation ratios and stock price predictability in South Africa : is it there?

Show simple item record Gupta, Rangan Modise, Mampho P. 2012-10-02T06:28:12Z 2013-07-31T00:20:04Z 2012-01
dc.description.abstract Using monthly South African data for 1990:01-2009:10, this paper, to the best of our knowledge, is the first to examine the predictability of real stock prices based on valuation ratios, namely, price-dividend and price-earnings ratios. We cannot detect either short-horizon or long-horizon predictability; that is, the hypothesis that the current value of a valuation ratio is uncorrelated with future stock price changes cannot be rejected at both short- and long-horizons based on bootstrapped critical values constructed from linear representations of the data. We find, via Monte Carlo simulations, that the power to detect predictability in finite samples tends to decrease at long horizons in a linear framework. Though Monte Carlo simulations applied to exponential smooth-transition autoregressive (ESTAR) models of the price-dividend and price-earnings ratios, show increased power, the ability of the non-linear framework in explaining the pattern of stock price predictability in the data does not show any promise both at short- and long-horizons, just as in the linear predictive regressions. en_US
dc.description.uri en_US
dc.identifier.citation Gupta, R & Modise, MP 2012, 'Valuation ratios and stock price predictability in South Africa : is it there?', Emerging Markets Finance and Trade, vol. 48, no. 1, pp. 70-82. en_US
dc.identifier.issn 1540-496X (print)
dc.identifier.issn 1558-0938 (online)
dc.identifier.other 10.2753/REE1540-496X480104
dc.language.iso en en_US
dc.publisher M.E. Sharpe en_US
dc.rights © 2012 M.E. Sharpe, Inc. All rights reserved. en_US
dc.subject Predictive regression en_US
dc.subject Monte Carlo simulation en_US
dc.subject Nonlinear mean-reversion en_US
dc.title Valuation ratios and stock price predictability in South Africa : is it there? en_US
dc.type Postprint Article en_US

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