Out-of-sample stock return predictability in Australia
AbstractWe provide one of the first comprehensive studies on out-of-sample stock returns predictability in Australia. While most of the empirically well-known predictive variables fail to generate out-of-sample predictability, we document a significant out-of-sample prediction in forecasting ahead one-year and, to a lesser extent, one-quarter future excess returns, using a combination forecast of variables. We also find improved asset allocation using the combination forecast of these predictors. The combining methods are useful in predicting sector premia. Specifically, a sector rotation strategy relying on the combining methods outperforms the market by 3.27% per annum on a risk-adjusted basis.
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Bibliographic InfoArticle provided by Australian School of Business in its journal Australian Journal of Management.
Volume (Year): 37 (2012)
Issue (Month): 3 (December)
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Web page: http://www.agsm.edu.au
combination forecasts; out-of-sample predictability; portfolio allocation; predictive regression; sector rotation;
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- David R. Gallagher & Katja Ignatieva & James McCulloch, 2013. "Industry Concentration, Excess Returns and Innovation in Australia," Research Paper Series 334, Quantitative Finance Research Centre, University of Technology, Sydney.
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