Maximizing Predictability in the Stock and Bond Markets
(578 K)
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NBER Working Paper No. 5027
Issued in February 1995
NBER Program(s): AP
We construct portfolios of stocks and of bonds that are maximally predictable with respect to a set of ex ante observable economic variables, and show that these levels of predictability are statistically significant, even after controlling for data-snooping biases. We disaggregate the sources for predictability by using several asset groups, including industry-sorted portfolios, and find that the sources of maximal predictability shift considerably across asset classes and sectors as the return-horizon changes. Using three out-of-sample measures of predictability, we show that the predictability of the maximally predictable portfolio is genuine and economically significant.
Published: Lo, Andrew W. & Mackinlay, A. Craig, 1997.
"Maximizing Predictability In The Stock And Bond Markets,"
Macroeconomic Dynamics,
Cambridge University Press, vol. 1(01), pages 102-134, January.
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