publication . Article . Research . 2016

Money growth and aggregate stock returns

Georg Stadtmann; Tobias Böing;
Open Access
  • Published: 01 Jan 2016 Journal: Credit and Capital Markets – Kredit und Kapital, volume 50, pages 489-508 (issn: 2199-1227, eissn: 2199-1235, Copyright policy)
  • Publisher: Duncker & Humblot GmbH
Abstract
We empirically evaluate the predictive power of money growth measured by M2 for stock returns of the S&P 500 index. We use monthly US data and predict multiperiod returns over 1, 3, and 5 years with long-horizon regressions. In-sample regressions show that money growth is useful for predicting returns. Higher recent money growth has a significantly negative effect on subsequent returns of the S&P 500. An out-of-sample analysis shows that a simple model with money growth as a single predictor performs as goods as the constant expected returns model, while models with several predictor variables perform worse than those simple models.
doi: 10.3790/ccm.50.4.489
handle: 10419/148945
Subjects
Medical Subject Headings: health care economics and organizations
free text keywords: C58, E44, E47, G14, G17, Money growth, M2, S&P 500, Stock Returns, Out-of-Sample, Predictive power, Stock market, Economics, Econometrics, Financial economics, Out of sample, Predictor variables, ddc:330
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