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International Stock Return Predictability: What Is the Role of the United States?
Author(s) -
RAPACH DAVID E.,
STRAUSS JACK K.,
ZHOU GUOFU
Publication year - 2013
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12041
Subject(s) - predictability , predictive power , stock (firearms) , economics , lag , equity (law) , econometrics , financial economics , explanatory power , time lag , excess return , monetary economics , geography , statistics , political science , mathematics , computer network , philosophy , archaeology , epistemology , computer science , context (archaeology) , law
ABSTRACT We investigate lead‐lag relationships among monthly country stock returns and identify a leading role for the United States: lagged U.S. returns significantly predict returns in numerous non‐U.S. industrialized countries, while lagged non‐U.S. returns display limited predictive ability with respect to U.S. returns. We estimate a news‐diffusion model, and the results indicate that return shocks arising in the United States are only fully reflected in equity prices outside of the United States with a lag, consistent with a gradual information diffusion explanation of the predictive power of lagged U.S. returns.