The Effect of the Term Spread, Dividend Yield and Real Activity on Stock Returns: Evidence From 15 Countries

This study investigates the effect of two predictor variables, the term spread and the dividend yield, on stock returns for 15 countries. It finds that the typical US result of a significant positive association between these predictor variables and stock returns does not generalise to the broader sample of countries. 

We find, though, that the term spread does help forecast future production growth in several countries, and that stock returns are, in general, correlated with future real activity. 

Theories that predict a link between our predictor variables and stock returns probably need some modification in order to capture the above heterogeneity. 

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