"Predicting Equity Returns for 37 Countries: Tweeking the Gordon Formula"
Recently, there has been a lot of discussion about whether
and how much the U.S. stock market is overvalued, leading
some economic gurus to suggest that foreign markets may be
good investments. We ask whether this is the case and apply
the Gordon formula to predict future real rates of return
on three Morgan Stanley Capital International indices and
37 individual country indices. Our conclusion is that, as a
whole, foreign markets do indeed promise significantly
higher future returns than the U.S. market does, suggesting
that an increased focus on international diversification by
investors and fund managers could be beneficial. JEL
classification: G11 & G12.
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