Out-of-Sample Industry Return Predictability: Evidence from A Large Number of Predictors

• Main Authors: Rapach, David E., Strauss, Jack K., TU, Jun, Zhou, Guofu
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2011
• Subjects: out-of-sample return predictability; industry portfolios; conditional beta pricing model; alpha predictability; Fama-French factors; industry-rotation strategy; Finance and Financial Management; Portfolio and Security Analysis
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/1803; https://ink.library.smu.edu.sg/context/lkcsb_research/article/2802/viewcontent/TuJunOutofSampleIndustryReturn.pdf
• Institution: Singapore Management University

We uncover extensive evidence of out-of-sample return predictability for industry portfolios based on a principal component approach that incorporates information from a large number of predictors. Moreover, we find substantial differences in the degree of return predictability across industries. To...