Fama French factors and US stock return predictability

Ekaterini Panopoulou and Sotiria Plastira

Journal of Asset Management, 2014, vol. 15, issue 2, No 3, 110-128

Abstract: Abstract This article investigates whether the HML, SMB along with the long-term reversal and the momentum factors exhibit both in-sample and out-of-sample forecasting ability for the US stock returns. Our findings suggest that these factors contain significantly more information for future stock market returns than the typically employed financial variables. We also go one step further and test whether these variables can proxy for the aforementioned factors and find that the default spread and to a lesser extent the term spread contain important information for the evolution of the factors examined. Finally, we show that appropriate decompositions of the factors in their size and value components can enhance predictability.

Keywords: Fama French factors; out-of-sample forecasts; momentum; reversal; return predictability (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (3)

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DOI: 10.1057/jam.2014.15

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