Date of Award

Fall 12-18-2015

Degree Type

Dissertation-Restricted

Degree Name

Ph.D.

Degree Program

Financial Economics

Department

Economics and Finance

Major Professor

Naka,Atsuyuki

Second Advisor

Davis,James R.

Third Advisor

Hassan,Mohammad Kabir

Fourth Advisor

Mukherjee,Tarun

Fifth Advisor

Whitney,Gerald

Abstract

This research consists of two essays. The first essay entitled” Stock Return Forecasting with Sum-of-the-Parts Methodology: Evidence from Around the World”, examines forecasting ability of stock returns by employing the sum-of-the-parts (SOP) modeling technique introduced by Ferreira and Santa-Clara (2011).This approach decomposes return into three components of growth in price-earnings ratio, earnings growth, and dividend-price ratio. Each component is forecasted separately and fitted values are used in forecast model to predict stock return. We conduct a series of one-step ahead recursive forecasts for a wide range of developed and emerging markets over the period February 1995 through November 2014. Decomposed return components are forecasted separately using a list of financial variables and the fitted values from the best estimators are used according to out-of-sample performance. Our findings show that the SOP method with financial variables outperforms the historical sample mean for the majority of countries.

Second essay entitled,” Equity Premium Predictability under Regime Shifts: International Evidence”, utilizes the modified version of the dividend-price ratio that alleviates some econometric concerns in the literature regarding the non-stationary and persistent predictor when forecasting international equity premium across different regimes. We employ Markov switching technique to address the issue of non-linearity between the equity premium and the predictor. The results show different patterns of equity premium predictability over the regimes across countries by the modified ratio as predictor. In addition, transition probability analysis show the adverse effect of financial crisis on regime transition probabilities by increasing the probability of switching between regimes post-crisis 2007 implying higher risk perceived by investors as a result of uncertainty inherent in regime transitions.

Rights

The University of New Orleans and its agents retain the non-exclusive license to archive and make accessible this dissertation or thesis in whole or in part in all forms of media, now or hereafter known. The author retains all other ownership rights to the copyright of the thesis or dissertation.

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