International stock return predictability

Simon C. Smith

International Review of Financial Analysis, 2021, vol. 78, issue C

Abstract: We propose a new methodology for predicting international stock returns. Our Bayesian framework performs probabilistic selection of predictors that can shift at multiple unknown structural break dates. The approach generates significantly more accurate forecasts of international stock returns than a range of popular models that are economically meaningful for a risk-averse mean–variance investor. Allowing for regime-specific variable selection reduces considerably the international diversification of an unhedged U.S. investor’s portfolio.

Keywords: International stock return predictability; Predictor selection; Structural breaks; Bayesian analysis (search for similar items in EconPapers)
JEL-codes: C11 C15 G10 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:78:y:2021:i:c:s1057521921002805

DOI: 10.1016/j.irfa.2021.101963

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