Out-of-sample stock return predictability in Australia

Yiwen Paul Dou, David R. Gallagher, David Schneider, Terry S. Walter

Research output: Contribution to journalArticle

11 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)461-479
Number of pages19
JournalAustralian Journal of Management
Volume37
Issue number3
DOIs
Publication statusPublished - Dec 2012

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