Instability of stock market predictability: a nod toward narratives

Nicholas Mangee ()

Chapter 4 in Narrative Analytics and Stock Market Forecasting, 2025, pp 46-55 from Edward Elgar Publishing

Abstract: No area of financial research has garnered more attention than the voluminous literature on stock market prediction. Rightly so, as the implications are substantial. For decades, contentious debates have endured about whether patterns of return predictability exist and whether it is possible to consistently exploit them in economically meaningful ways. To say that the predictability literature is mixed is a gross understatement. In fact, the findings are so nuanced that conventional survey articles are simply inadmissible without strong epistemological priors. This chapter provides a brief overview of the stylized facts uncovered across the literature, but, importantly, through the lens of the Novelty-Narrative Hypothesis (NNH). Stylized facts most-often documented surround: (i) poor out-of-sample performance of prediction models, (ii) time-varying predictability across sub-periods and over different forecasting horizons, (iii) nonlinear, highly localized predictor relationships, (iv) structural change in predictor relationships, and (v) predictors being highly persistent in their autoregressive processes.

Keywords: Survey of stock market prediction; Stock prediction stylized facts; Structural change; Time-varying prediction; Stock market persistence (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035357598
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