The Granularity of the Stock Market: Forecasting Aggregate Returns Using Firm-Level Data

Stefano Schiaffi ()
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Stefano Schiaffi: Milan University “L. Bocconi”

Rivista di Politica Economica, 2013, issue 4, 141-169

Abstract: This paper draws on the theoretical concept of granularity to forecast aggregate stock market returns using firm-level data. When applied to stock market returns, granularity suggests that fluctuations in the returns of individual firms can be used to forecast future aggregate returns. This paper finds that a model including firm-level data outperforms a benchmark model based on aggregate variables alone. Furthermore, a real-time investment strategy based on our model beats a buyand-hold strategy on the stock market either in terms of cumulative returns or in terms of risk-adjusted excess returns or in both, depending on the forecast horizon.

Keywords: granularity; forecasting; stock market returns (search for similar items in EconPapers)
JEL-codes: G11 G17 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:rpo:ripoec:y:2013:i:4:p:141-169

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