Article: On the Predictability of Stock Market Returns: Evidence from Industry-Rotation Strategies Journal: Journal of Business and Management (JBM) 2008 Vol.14 No.2 pp.149 - 173 Abstract: This paper evaluates historic, Bayes-Stein, Capital Asset Pricing Model (CAPM) and dividend-yield riskfree-rate estimators of asset means using statistical and economic criteria. None of the estimators exhibit much in the way of out-of-sample predictive ability when judged by statistical criteria. Yet, when combined with a discrete-time power-utility portfolio selection model, all the estimators generate economically significant returns judged in terms of compound return - standard deviation plots and accumulated wealth. Even so, the portfolios generated from dividend-yield riskfree-rate estimators perform by far the best and portfolios generated from traditional CAPM estimator perform the worst. For the most part, commonly accepted statistical measures of investment performance support these rankings. Inderscience Publishers - linking academia, business and industry through research

Title: On the Predictability of Stock Market Returns: Evidence from Industry-Rotation Strategies

Authors: Robert R. Grauer

Addresses: Author address listing can be found in the "About the Authors" section at the end of the article.

Abstract: This paper evaluates historic, Bayes-Stein, Capital Asset Pricing Model (CAPM) and dividend-yield riskfree-rate estimators of asset means using statistical and economic criteria. None of the estimators exhibit much in the way of out-of-sample predictive ability when judged by statistical criteria. Yet, when combined with a discrete-time power-utility portfolio selection model, all the estimators generate economically significant returns judged in terms of compound return - standard deviation plots and accumulated wealth. Even so, the portfolios generated from dividend-yield riskfree-rate estimators perform by far the best and portfolios generated from traditional CAPM estimator perform the worst. For the most part, commonly accepted statistical measures of investment performance support these rankings.

Keywords: Stock market returns; industry-rotation strategies; capital asset pricing model (capm); bayes-stein estimator; dividend-yield estimator.

DOI: 10.1504/JBM.2008.141165

Journal of Business and Management, 2008 Vol.14 No.2, pp.149 - 173

Published online: 05 Sep 2024 *

Title: On the Predictability of Stock Market Returns: Evidence from Industry-Rotation Strategies

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