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| Tekijä: | Ferreira, M.A. Santa-Clara, P. |
| Otsikko: | Forecasting stock market returns: The sum of the parts is more than the whole |
| Lehti: | Journal of Financial Economics
2011 : JUN, VOL. 100:3 p. 514-537 |
| Asiasana: | stock markets stock returns forecasting finance equities trading strategy market research |
| Kieli: | eng |
| Tiivistelmä: | This paper proposes forecasting separately the three components of stock market returns: the dividend-price ratio, earnings growth, and price-earnings ratio growth --- the sum-of-the-parts (SOP) method. This method utilizes the different time-series persistence of the components and obtains out-of-sample R-squares (compared to the historical mean) of more than 1.3 percent with monthly data and 13.4 percent with yearly data. This compares with typically negative R-squares obtained in a similar experiment with predictive regressions. The performance of the SOP method comes mainly from the dividend-price ratio and earnings growth components and the robustness of the method is due to its low estimation error. An investor who timed the market using the proposed method would have had a Sharpe ratio gain of 0.3. |
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