Browsing by Author "Schmidt, Simon"
Now showing 1 - 1 of 1
Results Per Page
Sort Options
- Predictability of future stock returns by combination of predictorsPublication . Schmidt, Simon; Faias, José Afonso de Carvalho TavaresThis dissertation evaluates the return predictability of forecasts derived from Fama-MacBeth regressions. I show how investors can combine firm characteristics to estimate the subsequent month’s stock returns in cross section. These forecasts exhibit a high predictive ability as they capture the cross-sectional dispersion of returns consistently and are independent of size, bookto- market ratio and industry. Combining a set of nine firm characteristics, the return estimates exhibit a standard deviation of 1% and yield a predictive slope of 0.85 for large stocks. Portfolio sorts based on these forecasts offer a Sharpe ratio of 1.06 for a simple buy and hold strategy and a Sharpe Ratio of 1.24 for a long-short investment strategy net of transaction costs.