Journal ArticleDOI
Combination Return Forecasts and Portfolio Allocation with the Cross-Section of Book-to-Market Ratios
Andrew L. Detzel,Jack Strauss +1 more
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In this article, the authors forecast industry returns out-of-sample using the cross-section of book-to-market ratios and investigate whether investors can exploit this predictability in portfolio allocation.Abstract:
In this paper, we forecast industry returns out-of-sample using the cross-section of book-to-market ratios and investigate whether investors can exploit this predictability in portfolio allocation. Cash-flow and return forecasting regressions show that cross-industry book-to-market ratios contain significant predictive information beyond aggregate and industry-specific book-to-market ratios. Forecast combination methods based on industry book-to-market ratios generate significant out-of-sample predictability for many industries. Real-time portfolio-rotation strategies that buy industries with high predicted returns and short industries with low predicted returns based on combination forecasts earn significant alpha with respect to standard asset pricing models net of transaction costs.read more
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Learning and predictability via technical analysis: Evidence from bitcoin and stocks with hard-to-value fundamentals
TL;DR: In this paper, the authors propose an equilibrium model that shows how rational learning enables return predictability through technical analysis, showing that ratios of prices to their moving averages forecast daily Bitcoin returns in- and out-of sample trading strategies based on these ratios generate an economically significant alpha and Sharpe ratio gains relative to a buy-and-hold position.
Journal ArticleDOI
Do limits to arbitrage explain the benefits of volatility-managed portfolios?
TL;DR: In this article, the authors investigate whether transaction costs, arbitrage risk, and short-sale impediments explain the abnormal returns of volatility-managed equity portfolios and show that volatility management of asset-pricing factors besides the market return generally produces zero abnormal returns and significantly reduces Sharpe ratios.
Journal ArticleDOI
Expected versus Ex Post Profitability in the Cross‐Section of Industry Returns
TL;DR: In this article, the authors use out-of-sample combination forecasts to estimate expected industry level operating profit, gross profit, operating cash flow, and net income, and construct real-time industry rotation strategies based on high and low expected profitability.
Posted Content
Commodity Futures Return Predictability and Intertemporal Asset Pricing
TL;DR: In this paper, the authors find out-of-sample predictability of commodity futures excess returns using forecast combinations of 28 potential predictors, and find that the combination forecasts of commodity returns have significantly positive predictive power for future economic activity.
References
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Journal ArticleDOI
Common risk factors in the returns on stocks and bonds
Eugene F. Fama,Kenneth R. French +1 more
TL;DR: In this article, the authors identify five common risk factors in the returns on stocks and bonds, including three stock-market factors: an overall market factor and factors related to firm size and book-to-market equity.
Journal ArticleDOI
The Cross‐Section of Expected Stock Returns
Eugene F. Fama,Kenneth R. French +1 more
TL;DR: In this paper, Bhandari et al. found that the relationship between market/3 and average return is flat, even when 3 is the only explanatory variable, and when the tests allow for variation in 3 that is unrelated to size.
Journal ArticleDOI
On Persistence in Mutual Fund Performance
TL;DR: Using a sample free of survivor bias, this paper showed that common factors in stock returns and investment expenses almost completely explain persistence in equity mutual fund's mean and risk-adjusted returns.
Journal ArticleDOI
The Persistence of Mutual Fund Performance
Mark Grinblatt,Sheridan Titman +1 more
TL;DR: This article analyzed how mutual fund performance relates to past performance and found evidence that differences in performance between funds persist over time and that this persistence is consistent with the ability of fund managers to earn abnormal returns.
Journal ArticleDOI
Illiquidity and stock returns: cross-section and time-series effects $
TL;DR: In this article, the authors show that expected market illiquidity positively affects ex ante stock excess return, suggesting that expected stock ex ante excess return partly represents an illiquid price premium, which complements the cross-sectional positive return-illiquidity relationship.
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