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Evaluate the predictability of excess stock returns

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  1. Investors in the modern world are largely after investing in securities that will give them abnormal or excess returns
  2. The issue of the excess returns and the investors is a matter of irrationality

First and foremost, predictability of excess returns in the stock markets is an issue which is affected by not just a factor but many factors in the environment. The issues which daily affects the markets such as politics and economical environments will definitely affect the predictability of stock returns. The companies which are in the stock markets also find it a hard nut to crack regarding the predictability of excess returns. Specifically for this factor pertaining to predictability of excess stock returns, it basically means that the company in question incurred abnormal profits in the course of their business. This is a phenomenon which is supposedly not possible to happen since it is coined in that the stock prices are transparent and they show exactly the performance of a company in the industry in its entirety without leaving anything to chance.

[...] As earlier pointed out, the predictability of excess stock returns depends on various factors. Factors such as market crashes, political crises, economic crises, economic bubbles as well as major regulatory changes by the government affects the predictability of stock returns. During crashes in the stock markets, there is a high degree of uncertainty in the returns; this is associated with different measures of return predictability. However, in times of economic and political crises, there is a high degree of return predictability where the obvious prediction is a reduction in the stock market prices. [...]

[...] 868-879. Johnson, T. c Rational Momentum Effects. The Journal of Finance, LVII(2), p Werner F. M De Bont, R. H. T Anomalies: A Mean-Reverting Walk Down Wall Street. Journal of Ecconomic Perspectives, III(1), pp. 189-202. [...]

[...] This makes it even harder to evaluate the predictability of stock returns in a company. However, through the use of some statistical techniques, it is fairly possible to predict stock returns in the stock markets. There are various measurement options which are used to assess the degree to which the predictability of returns from stocks can be ascertained. Investors in the modern world are largely after investing in securities that will give them abnormal or excess returns. These phenomena have been refuted by scholars and have led many investors in making the wrong investment choices. [...]

[...] The Journal of Finance, LXVIII(3), pp. 930-981. Fama, E. F Market Efficiency, Long Term Returns, and Behavioural Finance. Journal Of Financial Economics, 49(12), pp. 285-286. Jae H. Kim, A. S. K.-P. L Stock Return Predictability and the Adaptive Market Hypothesis: Evidence from Century Long U.S Data. Journal of Emphirical Evidence, IV(18), pp. [...]

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