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Do Cross-Sectional Predictors Contain Systematic Information?

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  • Engelberg, Joseph
  • McLean, R. David
  • Pontiff, Jeffrey
  • Ringgenberg, Matthew C.

Abstract

Firm-level variables that predict cross-sectional stock returns, such as price-to-earnings and short interest, are often averaged and used to predict market returns. Using various samples of cross-sectional predictors and accounting for the number of predictors and their interdependence, we find only weak evidence that cross-sectional predictors make good time-series predictors, especially out-of-sample. The results suggest that cross-sectional predictors do not generally contain systematic information.

Suggested Citation

  • Engelberg, Joseph & McLean, R. David & Pontiff, Jeffrey & Ringgenberg, Matthew C., 2023. "Do Cross-Sectional Predictors Contain Systematic Information?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 58(3), pages 1172-1201, May.
    • Handle: RePEc:cup:jfinqa:v:58:y:2023:i:3:p:1172-1201_8
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