||In this thesis, mainly researched data is the Taiwan capitalization weighted index (TAIEX),|
the purpose of the study is to examine the predictive power of the dividend yields and short
rate for forecasting excess return, cash flows, and interest rates over long period and short
period. We use the monthly data of TAIEX in the Taiwan Economic Journal (TEJ) and
refer to Andrew and Geert ( 2007) that proposed prediction method. The data analysis in
this thesis is collected from January, 1987 to January, 2013, total of 313 months. To collect
data for the selected variables is the closing price of the monthly TAIEX and the monthly
dividend. The empirical results shows that, dividend yields predict excess returns only at
short horizon together with the short rate and do not have long-horizon predictive power.
At short horizon, the short rate predicts returns with strongly negative relationship.
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