Click to login and read the full article.
Don’t have access? Click here to request a demo
Alternatively, Call a member of the team to discuss membership options
US and Overseas: +1 646-931-9045
EMEA: +44 0207 139 1600
Abstract
The authors examine out-of-sample industry excess return predictability and portfolio allocation using forecasting combination methods of industry-level and aggregate accruals, book-to-market, earnings, investments, and gross profits. Out-of-sample combination forecasts generate significant industry return predictability. Substantial increases in Sharpe ratios and utility gains demonstrate that predictability is not driven primarily by higher risk. Real-time portfolio allocation strategies rotate into long positions in industries with high expected returns and short industries with low expected returns. Over the past thirty years, outof-sample combination forecasts of accounting variables have generated value-weighted industry portfolio payoffs five times greater than a buy-and-hold benchmark. The constructed portfolios consistently beat a buy-and-hold benchmark portfolio two-to-one while generating alphas that exceed 10%.
TOPICS: Portfolio theory, derivatives
- © 2016 Pageant Media Ltd
Don’t have access? Click here to request a demo
Alternatively, Call a member of the team to discuss membership options
US and Overseas: +1 646-931-9045
UK: 0207 139 1600