Working Paper: NBER ID: w3191
Authors: John Y. Campbell; Yasushi Hamao
Abstract: This paper studies the predictability of monthly excess returns on equity portfolios over the domestic short-term interest rate in the U.S. and Japan during the period 1971:1-1989:3. The paper finds that similar variables, including the dividend-price ratio and interest rate variables, help to forecast excess returns in each country. In addition, in the 1980's U.S. variables help to forecast excess Japanese stock returns. There is evidence of common movement in expected excess returns across the two countries, which is suggestive of integration of long-term capital markets.
Keywords: stock returns; capital market integration; predictability; Japan; United States
JEL Codes: G12; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| dividend-price ratio (G35) | expected excess returns in the US (G12) |
| interest rate variables (E43) | expected excess returns in the US (G12) |
| dividend-price ratio (G35) | expected excess returns in Japan (G17) |
| interest rate variables (E43) | expected excess returns in Japan (G17) |
| US market conditions (N22) | excess Japanese stock returns (G12) |
| common unobserved variable (C29) | expected excess returns in the US (G12) |
| common unobserved variable (C29) | expected excess returns in Japan (G17) |
| capital market integration (F30) | expected excess returns in Japan and the US (G15) |
| expected excess returns in Japan (G15) | expected excess returns in the US (G12) |
| expected excess returns in the US (G12) | expected excess returns in Japan (G17) |