SoleCRISTransition linkFrontpageTransition linkInstructionsTransition linkLogin Bank of Finland

A Peer-reviewed scientific articles/A1 Journal article (refereed), original research
This is the view page of publication. On this page you can view basic information of publication or go back on previous page using back-action on the bottom of the page. If you want to move to edit the information of publication, use the actions on the bottom of the page or continue using the system from menu.

Forecasting stock market returns by summing the frequency-decomposed parts, Journal of Empirical Finance January (2018). Faria, Gonçalo; Verona, Fabio

Category A Peer-reviewed scientific articles
Sub-category A1 Journal article (refereed), original research
auki Internal authors
All authors as text Faria, Gonçalo; Verona, Fabio 
Number of authors
Status Published
Year of publication 2018 
Date 15.01.2018 
Name of article Forecasting stock market returns by summing the frequency-decomposed parts 
Name of journal Journal of Empirical Finance
Volume of issue 45 
Number of issue January 
Pages 228–242 
Abstract We generalize the Ferreira and Santa-Clara (2011) sum-of-the-parts method for forecasting stock market returns. Rather than summing the parts of stock returns, we suggest summing some of the frequency-decomposed parts. The proposed method significantly improves upon the original sum-of-the-parts and delivers statistically and economically gains over historical mean forecasts, with monthly out-of-sample R2 of 2.60% and annual utility gains of 558 basis points. The strong performance of this method comes from its ability to isolate the frequencies of the parts with the highest predictive power, and from the fact that the selected frequency-decomposed parts carry complementary information that captures different frequencies of stock market returns.
Free text descriptor in Finnish ennustettavuus; ennusteet; osakkeet; tuotot; osakemarkkinatuotot; osakemarkkinapreemio; sijoitusallokaatio; taajuusalue; väreet; osakemarkkinat; 
Free text descriptor in English Predictability; Stock returns; Equity premium; Asset allocation; Frequency domain; Wavelets 
JEL-codes G11; G12; G14; G17 
ISSN / e-ISSN 0927-5398 
auki Internet addresses
Additional information Available online 8 December 2017.
Notes BoF DP 29/2016 

Related publications