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Are individual stock returns predictable?

Author

Listed:
  • Hui Zeng
  • Ben R Marshall

    (School of Economics and Finance, Massey University, Auckland, New Zealand)

  • Nhut H Nguyen

    (Auckland University of Technology, Auckland, New Zealand)

  • Nuttawat Visaltanachoti

    (Massey University, Auckland, New Zealand)

Abstract

We show that the previously documented predictability of macroeconomic and technical variables for market returns is also evident in individual stock returns. Technical variables generate better predictability on firms with high limits to arbitrage (small, illiquid, volatile firms), while macroeconomic variables better predict firms with low limits to arbitrage. Technical predictors show a stronger predictive power for high limits to arbitrage firms across the business cycle, whereas macroeconomic variables capture more predictive information for firms with low limits to arbitrage during recessions. JEL Classification: C58, E32, G11, G12, G17

Suggested Citation

  • Hui Zeng & Ben R Marshall & Nhut H Nguyen & Nuttawat Visaltanachoti, 2022. "Are individual stock returns predictable?," Australian Journal of Management, Australian School of Business, vol. 47(1), pages 135-162, February.
    • Handle: RePEc:sae:ausman:v:47:y:2022:i:1:p:135-162
    DOI: 10.1177/03128962211001509
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    More about this item

    Keywords

    Business cycle; cross-sectional predictability; firm-level predictability; limits to arbitrage; macroeconomic and technical predictors; principal component analysis;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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