In this paper, we study portfolio choice problem under estimation risk and show why the 1/N rule is very difficult to beat in applications and studies. First, as long as the dimensionality is high relative to sample size, we show that the usual estimated investment strategies are biased even...

While economic variables have been used extensively to forecast bond risk premia, little attention has been paid to technical indicators which are widely used by practitioners. In this paper, we study the predictive ability of a variety of technical indicators vis-a-vis the economic variables....

Academic research has extensively used macroeconomic variables to forecast the U.S. equity risk premium, with little attention paid to the technical indicators widely employed by practitioners. Our paper fills this gap by comparing the forecasting ability of technical indicators with that of...

Academic research relies extensively on macroeconomic variables to forecast the U.S. equity risk premium, with relatively little attention paid to the technical indicators widely employed by practitioners. Our paper fills this gap by comparing the forecasting ability of technical indicators with...

We propose a new investor sentiment index that is aligned with the purpose of predicting the aggregate stock market. By eliminating a common noise component in sentiment proxies, the new index has much greater predictive power than existing sentiment indices both in- and out-of-sample, and the...

This paper constructs a manager sentiment index based on the aggregated textual tone of corporate financial disclosures. We find that manager sentiment is a strong negative predictor of future aggregate stock market returns, with monthly in-sample and out-of-sample R2 of 9.75% and 8.38%,...

We find that investor attention proxies proposed in the literature collectively have a common component that has significant power in predicting stock market risk premium, both in-sample and out-of-sample. This common component is well extracted by using partial least squares, scaled principal...

We analyze the joint out-of-sample predictive ability of a comprehensive set of 299 firm characteristics for cross-sectional stock returns. We develop a cross-sectional out-of-sample R2 statistic that provides an informative measure of the accuracy of cross-sectional return forecasts in terms of...

We find a pricing error profitability pattern for well-known asset pricing models: the CAPM, Fama-French, Hou-Xue-Zhang, Stambaugh-Yuan, and Daniel-Hirshleifer-Sun. A trading strategy that buys low pricing error stocks and sells high pricing error ones earns significant average and risk-adjusted...

We reaffirm the stylized fact that bond risk premia are time-varying with macroeconomic condition, even with real-time macro data instead of commonly used final revised data. While real-time data are noisier and render standard forecasts insignificant, we find that, with four efficient...