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Economically Significant Stock Market Forecasts

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  • Pelaez, Rolando F

Abstract

It has been known for some time that a small, but statistically significant portion of the monthly variation in excess returns on the S&P 500-stock index is predictable using ex ante information. This paper presents a model whose out-of-sample forecasts have economic significance. Specifically, a switching rule conditioned on out-of-sample forecasts of stock excess returns, produces investment outcomes that mean-variance dominate the buy-and-hold. The switching strategy yields superior risk-adjusted returns as judged by the composite performance measures of Treynor, Sharpe, and Jensen. Copyright 1998 by MIT Press.

Suggested Citation

  • Pelaez, Rolando F, 1998. "Economically Significant Stock Market Forecasts," The Financial Review, Eastern Finance Association, vol. 33(1), pages 65-76, February.
    • Handle: RePEc:bla:finrev:v:33:y:1998:i:1:p:65-76
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    Cited by:

    1. Tezel, Ahmet & McManus, Ginette, 2001. "Evaluating a stock market timing strategy: the case of RTE Asset Management," Financial Services Review, Elsevier, vol. 10(1-4), pages 173-186.
    2. Su-Jane Chen & Ming-Hsiang Chen, 2009. "Discount Rate Changes and Market Timing: A Multinational Study," Annals of Economics and Finance, Society for AEF, vol. 10(2), pages 329-349, November.

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