The Keys of Predictability: A Comprehensive Study

Giovanni Barone-Adesi, Antonietta Mira and Matteo Pisati
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Giovanni Barone-Adesi: University of Lugano; Swiss Finance Institute
Antonietta Mira: Università della Svizzera italiana - InterDisciplinary Institute of Data Science
Matteo Pisati: Universita' della Svizzera Italiana

No 19-15, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: The problem of market predictability can be decomposed into two parts: predictive models and predictors. At first, we show how the joint employment of model selection and machine learning models can dramatically increase our capability to forecast the equity premium out-of-sample. Secondly, we introduce batteries of powerful predictors which brings the monthly S&P500 R-square to a high level of 24%. Finally, we prove how predictability is a generalized characteristic of U.S. equity markets. For each of the three parts, we consider potential and challenges posed by the new approaches in the asset pricing field.

Keywords: Markets Predictability; Machine Learning; Model Selection (search for similar items in EconPapers)
Pages: 69 pages
Date: 2019-03, Revised 2019-04
New Economics Papers: this item is included in nep-big, nep-cmp, nep-fmk and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1915

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