Do Cross-Sectional Predictors Contain Systematic Information?

Joseph Engelberg, R. David McLean, Jeffrey Pontiff and Matthew Ringgenberg

Journal of Financial and Quantitative Analysis, 2023, vol. 58, issue 3, 1172-1201

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.

Date: 2023
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