Lunes de Papers, entre predicciones y red flags…

International Stock Return Predictability: What is the Role of the United States?

We present significant evidence of out-of-sample equity premium predictability for a host of industrialized countries over the postwar period. There are important differences, however, in the nature of equity premium predictability between the United States and other developed countries. Taken collectively, U.S. economic variables are significant out-of-sample predictors of the U.S. equity premium, while lagged international stock returns have no predictive power. In contrast, lagged international stock returns – especially lagged U.S. returns – substantially outperform economic variables as out-of-sample equity premium predictors for non-U.S. countries, pointing to a leading role for the United States with respect to international return predictability. The leading role of the United States is consistent with information frictions in international equity markets. In addition, the predictability patterns are enhanced during economic downturns, linking return predictability to business-cycle fluctuations and the diffusion of news on macroeconomic fundamentals across countries. The leading role of the United States stands out during the recent global financial crisis: lagged U.S. stock returns deliver especially sizable gains for forecasting the monthly equity premium in other countries, evidenced by out-of-sample R^2 statistics of 10% or greater, more than triple the postwar average.

Link al Paper (Bajarlo de Chicago Booth)

Barron’s Red Flags: Do They Actually Work?

Investors are often concerned that managers might hide negative information in the maze of mandated SEC filings. With advances in textual analysis and the availability of documents on EDGAR, individuals can quite easily search for phrases that might be red flags indicating aggressive accounting practices or poorly monitored management. We examine the impact of 13 suspicious corporate phrases identified by a recent Barron’s article in a sample of 50,115 10-Ks during 1994-2008. There is evidence that red flag phrases like related party and unbilled receivables signal a firm may subsequently be accused of fraud. At the 10-K filing date, phrases like substantial doubt are linked with significantly lower filing date excess stock returns, higher stock return volatility, and greater analyst earnings forecast dispersion.

Link al Paper (Bajarlo de Chicago Booth)


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