Time Variation in Expected Returns and Aggregate Asset Growth
نویسندگان
چکیده
Aggregate asset growth rst di¤erences of the logarithm of household net worth can capture time variation in changes in expected returns in quarterly and annual horizons in which stock returns have virtually zero autocorrelations. Regressions of changes in stock returns on aggregate asset growth provide stable estimates of slope coe¢ cients over time, which improve out-of-sample predictability. In particular, aggregate asset growth performs better out of sample in terms of a mean squared predictive error suggested by Clark and West (2007) than other predictors, such as the dividend-to-price ratio, cayand labor income growth.
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