Forecasting stock market returns by summing the frequency-decomposed parts

Faria, Gonçalo; Verona, Fabio

Publication

Forecasting stock market returns by summing the frequency-decomposed parts

2016Working paper

dc.contributor.author	Faria, Gonçalo
dc.contributor.author	Verona, Fabio
dc.date.accessioned	2018-07-05T16:19:08Z
dc.date.available	2018-07-05T16:19:08Z
dc.date.issued	2016
dc.description.abstract	We forecast stock market returns by applying, within a Ferreira and Santa-Clara (2011) sum-of-the-parts framework, a frequency decomposition of several predictors of stock returns. The method delivers statistically and economically significant improvements over historical mean forecasts, with monthly out- of-sample R2 of 3.27% and annual utility gains of 403 basis points. The strong performance of this method comes from its ability to isolate the frequencies of the predictors with the highest predictive power from the noisy parts, and from the fact that the frequency-decomposed predictors carry complementary information that captures both the long-term trend and the higher frequency movements of stock market returns.	pt_PT
dc.description.version	info:eu-repo/semantics/publishedVersion	pt_PT
dc.identifier.citation	Faria, G., Verona, F. (2016). Forecasting stock market returns by summing the frequency-decomposed parts. Working papers: Economics. N.º 5, 35 p.	pt_PT
dc.identifier.uri	http://hdl.handle.net/10400.14/25179
dc.language.iso	eng	pt_PT
dc.peerreviewed	no	pt_PT
dc.relation.publisherversion	https://ideas.repec.org/p/cap/wpaper/052016.html	pt_PT
dc.rights.uri	http://creativecommons.org/licenses/by/4.0/	pt_PT
dc.subject	Predictability	pt_PT
dc.subject	Stock returns	pt_PT
dc.subject	Equity premium	pt_PT
dc.subject	Asset allocation	pt_PT
dc.subject	Frequency domain	pt_PT
dc.subject	Wavelets	pt_PT
dc.title	Forecasting stock market returns by summing the frequency-decomposed parts	pt_PT
dc.type	working paper
dspace.entity.type	Publication
oaire.citation.title	Working papers: Economics	pt_PT
rcaap.rights	openAccess	pt_PT
rcaap.type	workingPaper	pt_PT