Out-of-sample stock return predictability in Australia

Yiwen (Paul) Dou, David Gallagher, David Schneider and Terry Walter (twalter@uow.edu.au)
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David Schneider: UniSuper Management Limited, Melbourne, Australia

Australian Journal of Management, 2012, vol. 37, issue 3, 461-479

Abstract: We provide one of the first comprehensive studies on out-of-sample stock returns predictability in Australia. While most of the empirically well-known predictive variables fail to generate out-of-sample predictability, we document a significant out-of-sample prediction in forecasting ahead one-year and, to a lesser extent, one-quarter future excess returns, using a combination forecast of variables. We also find improved asset allocation using the combination forecast of these predictors. The combining methods are useful in predicting sector premia. Specifically, a sector rotation strategy relying on the combining methods outperforms the market by 3.27% per annum on a risk-adjusted basis.

Keywords: combination forecasts; out-of-sample predictability; portfolio allocation; predictive regression; sector rotation (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:37:y:2012:i:3:p:461-479

DOI: 10.1177/0312896211428493

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