The Optimal Use of Return Predictability: An Empirical Study
In this paper we study the economic value and statistical significance of asset return predictability, based on a wide range of commonly used predictive variables. We assess the performance of dynamic, unconditionally efficient strategies, first studied by Hansen and Richard (<xref>1987</xref>) and Ferson and Siegel (<xref>2001</xref>), using a test that has both an intuitive economic interpretation and known statistical properties. We find that using the lagged term spread, credit spread, and inflation significantly improves the risk-return trade-off. Our strategies consistently outperform efficient buy-and-hold strategies, both in and out of sample, and they also incur lower transactions costs than traditional conditionally efficient strategies.
Year of publication: |
2012
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Authors: | Abhyankar, Abhay ; Basu, Devraj ; Stremme, Alexander |
Published in: |
Journal of Financial and Quantitative Analysis. - Cambridge University Press. - Vol. 47.2012, 05, p. 973-1001
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Publisher: |
Cambridge University Press |
Description of contents: | Abstract [journals.cambridge.org] |
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