Forecasting stock returns with industry volatility concentration

Yaojie Zhang, Mengxi He and Zhikai Zhang

Journal of Forecasting, 2024, vol. 43, issue 7, 2705-2730

Abstract: In this paper, we show that industry volatility concentration is a strong predictor for aggregate stock market returns. Our monthly industry volatility concentration (IVC) index displays significant predictive ability, with in‐sample and out‐of‐sample R2 statistics of 0.686% and 0.712%, respectively, which outperforms a host of prevailing return predictors. Moreover, the IVC index can generate high utility gains of 143.8 basis points above the historical average benchmark for mean–variance investors. We find that the IVC index is countercyclical. Furthermore, the predictive source of the IVC index not only stems from the cash flow and discount rate channels but is also explained by the channels of investor attention and sentiment. The predictive ability of our IVC index also remains significant under a broad range of robustness tests.

Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1002/for.3150

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:jforec:v:43:y:2024:i:7:p:2705-2730

Access Statistics for this article

Journal of Forecasting is currently edited by Derek W. Bunn

More articles in Journal of Forecasting from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().