Forecasting Stock Returns Using Model‐Selection Criteria

Jamie Alcock and Philip Gray

The Economic Record, 2005, vol. 81, issue 253, 135-151

Abstract: This paper examines the economic significance of return predictability in Australian equities. In light of considerable model uncertainty, formal model‐selection criteria are used to choose a specification for the predictive model. A portfolio‐switching strategy is implemented according to model predictions. Relative to a buy‐and‐hold market investment, the returns to the portfolio‐switching strategy are impressive under several model‐selection criteria, even after accounting for transaction costs. However, as these findings are not robust across other model‐selection criteria examined, it is difficult to conclude that the degree of return predictability is economically significant.

Date: 2005
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https://doi.org/10.1111/j.1475-4932.2005.00239.x

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