Are individual stock returns predictable?

Hui Zeng, Ben R Marshall, Nhut H Nguyen and Nuttawat Visaltanachoti ()
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Ben R Marshall: School of Economics and Finance, Massey University, Auckland, New Zealand
Nhut H Nguyen: Auckland University of Technology, Auckland, New Zealand

Australian Journal of Management, 2022, vol. 47, issue 1, 135-162

Abstract: We show that the previously documented predictability of macroeconomic and technical variables for market returns is also evident in individual stock returns. Technical variables generate better predictability on firms with high limits to arbitrage (small, illiquid, volatile firms), while macroeconomic variables better predict firms with low limits to arbitrage. Technical predictors show a stronger predictive power for high limits to arbitrage firms across the business cycle, whereas macroeconomic variables capture more predictive information for firms with low limits to arbitrage during recessions. JEL Classification: C58, E32, G11, G12, G17

Keywords: Business cycle; cross-sectional predictability; firm-level predictability; limits to arbitrage; macroeconomic and technical predictors; principal component analysis (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:47:y:2022:i:1:p:135-162

DOI: 10.1177/03128962211001509

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