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Fama French factors and US stock return predictability

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  • Ekaterini Panopoulou

    (Kent Business School, University of Kent)

  • Sotiria Plastira

Abstract

This article investigates whether the HML, SMB along with the long-term reversal and the momentum factors exhibit both in-sample and out-of-sample forecasting ability for the US stock returns. Our findings suggest that these factors contain significantly more information for future stock market returns than the typically employed financial variables. We also go one step further and test whether these variables can proxy for the aforementioned factors and find that the default spread and to a lesser extent the term spread contain important information for the evolution of the factors examined. Finally, we show that appropriate decompositions of the factors in their size and value components can enhance predictability.

Suggested Citation

  • Ekaterini Panopoulou & Sotiria Plastira, 2014. "Fama French factors and US stock return predictability," Journal of Asset Management, Palgrave Macmillan, vol. 15(2), pages 110-128, April.
  • Handle: RePEc:pal:assmgt:v:15:y:2014:i:2:d:10.1057_jam.2014.15
    DOI: 10.1057/jam.2014.15
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