Output and Expected Returns in Central and Eastern European Countries

Piotr Pietraszewski,Jerzy Gajdka

doi:10.17951/h.2020.54.4.41-54

Abstract

Theoretical background: Although some controversy remains, some aspects of the predictability of aggregate stock market returns in the United States and other industrialized countries appear to be relatively well established. Intertemporal asset pricing models based on the paradigm of investor rationality and market efficiency imply that various macro variables describing the state of the economy may forecast future returns on the aggregate stock market.Purpose of the article: The aim of the article is to present the results of a preliminary study which set out to determine whether the ratio of the stock index to the aggregate output in the economy and future rates of return in the aggregate stock markets in Central and Eastern Europe are significantly related to each other over different time horizons.Research methods: Heteroskedasticity and autocorrelation-consistent estimators with a small sample degrees of freedom adjustment were used in regressions to track overlapping data problem and small sample bias.Main findings: The analysis of the key market indices has shown that they explain much of the variation in the long-horizon future cumulative returns, as well as in cumulative excess returns.

Highlights

S Investors have always been seeking ways to forecast stock returns
A growing body of empirical evidence in support of the thesis that stock returns can be predicted from various market valuation indicators and macroeconomic variables has prompted the finance theorists to abandon the belief in this simplified market behaviour
The predictability of stock returns began to refer to changes in the expected rate of return, which are supposed to reflect the rational responses of economic entities to changing investment opportunities, probably driven

Summary

Introduction

S Investors have always been seeking ways to forecast stock returns. The standard version of the efficient market theory states that it is not possible unless a majorC malfunction in the market mechanism occurs. The predictability of stock returns in the US and other highly developed countries has been examined using various market ratios and macro variables in numerous studies.

Objectives

Results

Conclusion