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Out-of-sample stock return predictability in Australia

Journal Article


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.

Authors


  •   Dou, Yiwen (external author)
  •   Gallagher, David R. (external author)
  •   Schneider, David (external author)
  •   Walter, Terry S.

Publication Date


  • 2011

Citation


  • Dou, Y. (Paul)., Gallagher, D. R., Schneider, D. H. & Walter, T. S. (2012). Out-of-sample stock return predictability in Australia. Australian Journal of Management, 37 (3), 461-479.

Scopus Eid


  • 2-s2.0-84871224303

Ro Metadata Url


  • http://ro.uow.edu.au/buspapers/1192

Number Of Pages


  • 18

Start Page


  • 461

End Page


  • 479

Volume


  • 37

Issue


  • 3

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.

Authors


  •   Dou, Yiwen (external author)
  •   Gallagher, David R. (external author)
  •   Schneider, David (external author)
  •   Walter, Terry S.

Publication Date


  • 2011

Citation


  • Dou, Y. (Paul)., Gallagher, D. R., Schneider, D. H. & Walter, T. S. (2012). Out-of-sample stock return predictability in Australia. Australian Journal of Management, 37 (3), 461-479.

Scopus Eid


  • 2-s2.0-84871224303

Ro Metadata Url


  • http://ro.uow.edu.au/buspapers/1192

Number Of Pages


  • 18

Start Page


  • 461

End Page


  • 479

Volume


  • 37

Issue


  • 3