Page 79 - Contributed Paper Session (CPS) - Volume 3

CPS1947 Hsein K. et al.

Notes: This figure plots the following four pairs of cointegrated predictors: (a)
demean (earning price ratio) and (dividend-price ratio), (b)

(annualized 3-month T-bill rate) and (annualized long-term yield), (c)

annualized and -rated corporate bond yields, and (d) and

(dividend yield). The sample period is 1952:Q1 through 2017:Q4.

Table 1: Estimates of the single index model parameters and predictive test

In Table 1, using the F-tests, we reject the null of no predictability at the
5% level in both the full sample and the post-1952 sample for all four pairs,
with one exception. The pair of lty and tbl has no predictive ability for equity
premium in the full sample but this pair is a strongly statistically significant
predictor in the post-1952 sample with a p-value of 0.0028. Our result

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