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On the statistical and economic performance of stock return predictive regression models: an international perspective

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  • GIOT, Pierre
  • PETITJEAN, Mikael

Abstract

The predictability of stock returns is assessed in 10 countries using the linear predictive regression framework. We use recently developed out-of-sample statistical tests and include both valuation ratios and interest rates as predictive variables. Contrary to previous studies, we explicitly address the issue of the small-sample bias, deal with trading profitability, and employ several risk-adjusted metrics. When statistical forecastability is found, it cannot be exploited to consistently deliver abnormal returns across countries and investment horizons. We hold the view that returns are predictable to some extent, but show that such forecasts are not useful for portfolio advice.
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Suggested Citation

  • GIOT, Pierre & PETITJEAN, Mikael, 2011. "On the statistical and economic performance of stock return predictive regression models: an international perspective," LIDAM Reprints CORE 2432, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:2432
    DOI: 10.1080/14697680903468971
    Note: In : Quantitative Finance, 11(2),175-193, 2011
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    Cited by:

    1. Zhao, Albert Bo & Cheng, Tingting, 2022. "Stock return prediction: Stacking a variety of models," Journal of Empirical Finance, Elsevier, vol. 67(C), pages 288-317.
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    3. Farias Nazário, Rodolfo Toríbio & e Silva, Jéssica Lima & Sobreiro, Vinicius Amorim & Kimura, Herbert, 2017. "A literature review of technical analysis on stock markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 66(C), pages 115-126.
    4. Jordan, Steven J. & Vivian, Andrew & Wohar, Mark E., 2017. "Forecasting market returns: bagging or combining?," International Journal of Forecasting, Elsevier, vol. 33(1), pages 102-120.
    5. Sousa, Ricardo M. & Vivian, Andrew & Wohar, Mark E., 2016. "Predicting asset returns in the BRICS: The role of macroeconomic and fundamental predictors," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 122-143.
    6. Charles, Amélie & Darné, Olivier & Kim, Jae H., 2017. "International stock return predictability: Evidence from new statistical tests," International Review of Financial Analysis, Elsevier, vol. 54(C), pages 97-113.
    7. Jordan, Steven J. & Vivian, Andrew & Wohar, Mark E., 2016. "Can commodity returns forecast Canadian sector stock returns?," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 172-188.
    8. Lawrenz, Jochen & Zorn, Josef, 2017. "Predicting international stock returns with conditional price-to-fundamental ratios," Journal of Empirical Finance, Elsevier, vol. 43(C), pages 159-184.

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