Forecasting stock returns in good and bad times: The role of market states

• Main Authors: HUANG, Dashan, JIANG, Fuwei, Jun TU, ZHOU, Guofu
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2017
• Subjects: Return predictability; Mean reversion; Momentum; Market risk premium; Leading economic indicator; 200-day moving average; Business cycle; Finance; Finance and Financial Management
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/5156; https://ink.library.smu.edu.sg/context/lkcsb_research/article/6155/viewcontent/SSRN_id2188989.pdf
• Institution: Singapore Management University

This paper proposes a two-state predictive regression model and shows that stock market 12-month return (TMR), the time-series momentum predictor of Moskowitz, Ooi, and Pedersen (2012), forecasts the aggregate stock market negatively in good times and positively in bad times. The out-of-sample R-squ...