Forecasting stock market returns by summing the frequency-decomposed parts

Detalhes bibliográficos
Autor(a) principal: Faria, Gonçalo
Data de Publicação: 2016
Outros Autores: Verona, Fabio
Tipo de documento: Artigo
Idioma: eng
Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
Texto Completo: http://hdl.handle.net/10400.14/25179
Resumo: 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.
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spelling Forecasting stock market returns by summing the frequency-decomposed partsPredictabilityStock returnsEquity premiumAsset allocationFrequency domainWaveletsWe 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.Veritati - Repositório Institucional da Universidade Católica PortuguesaFaria, GonçaloVerona, Fabio2018-07-05T16:19:08Z20162016-01-01T00:00:00Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleapplication/pdfhttp://hdl.handle.net/10400.14/25179engFaria, G., Verona, F. (2016). Forecasting stock market returns by summing the frequency-decomposed parts. Working papers: Economics. N.º 5, 35 p.info:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2023-07-12T17:30:33Zoai:repositorio.ucp.pt:10400.14/25179Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-19T18:20:04.867101Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse
dc.title.none.fl_str_mv Forecasting stock market returns by summing the frequency-decomposed parts
title Forecasting stock market returns by summing the frequency-decomposed parts
spellingShingle Forecasting stock market returns by summing the frequency-decomposed parts
Faria, Gonçalo
Predictability
Stock returns
Equity premium
Asset allocation
Frequency domain
Wavelets
title_short Forecasting stock market returns by summing the frequency-decomposed parts
title_full Forecasting stock market returns by summing the frequency-decomposed parts
title_fullStr Forecasting stock market returns by summing the frequency-decomposed parts
title_full_unstemmed Forecasting stock market returns by summing the frequency-decomposed parts
title_sort Forecasting stock market returns by summing the frequency-decomposed parts
author Faria, Gonçalo
author_facet Faria, Gonçalo
Verona, Fabio
author_role author
author2 Verona, Fabio
author2_role author
dc.contributor.none.fl_str_mv Veritati - Repositório Institucional da Universidade Católica Portuguesa
dc.contributor.author.fl_str_mv Faria, Gonçalo
Verona, Fabio
dc.subject.por.fl_str_mv Predictability
Stock returns
Equity premium
Asset allocation
Frequency domain
Wavelets
topic Predictability
Stock returns
Equity premium
Asset allocation
Frequency domain
Wavelets
description 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.
publishDate 2016
dc.date.none.fl_str_mv 2016
2016-01-01T00:00:00Z
2018-07-05T16:19:08Z
dc.type.status.fl_str_mv info:eu-repo/semantics/publishedVersion
dc.type.driver.fl_str_mv info:eu-repo/semantics/article
format article
status_str publishedVersion
dc.identifier.uri.fl_str_mv http://hdl.handle.net/10400.14/25179
url http://hdl.handle.net/10400.14/25179
dc.language.iso.fl_str_mv eng
language eng
dc.relation.none.fl_str_mv Faria, G., Verona, F. (2016). Forecasting stock market returns by summing the frequency-decomposed parts. Working papers: Economics. N.º 5, 35 p.
dc.rights.driver.fl_str_mv info:eu-repo/semantics/openAccess
eu_rights_str_mv openAccess
dc.format.none.fl_str_mv application/pdf
dc.source.none.fl_str_mv reponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação
instacron:RCAAP
instname_str Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação
instacron_str RCAAP
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reponame_str Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
collection Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
repository.name.fl_str_mv Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação
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