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Finance and Financial Management

Research Collection Lee Kong Chian School Of Business

Series

2015

Return Predictability

Articles 1 - 2 of 2

Full-Text Articles in Business

Investor Sentiment Aligned: A Powerful Predictor Of Stock Returns, Dashan Huang, Fuwei Jiang, Jun Tu, Guofu Zhou Mar 2015

Investor Sentiment Aligned: A Powerful Predictor Of Stock Returns, Dashan Huang, Fuwei Jiang, Jun Tu, Guofu Zhou

Research Collection Lee Kong Chian School Of Business

We propose a new investor sentiment index that is aligned with the purpose of predicting the aggregate stock market. By eliminating a common noise component in sentiment proxies, the new index has much greater predictive power than existing sentiment indices have both in and out of sample, and the predictability becomes both statistically and economically significant. In addition, it outperforms well-recognized macroeconomic variables and can also predict cross-sectional stock returns sorted by industry, size, value, and momentum. The driving force of the predictive power appears to stem from investors' biased beliefs about future cash flows.


Asset Allocation In The Chinese Stock Market: The Role Of Return Predictability, Jian Chen, Fuwei Jiang, Jun Tu Jan 2015

Asset Allocation In The Chinese Stock Market: The Role Of Return Predictability, Jian Chen, Fuwei Jiang, Jun Tu

Research Collection Lee Kong Chian School Of Business

In this article the authors investigate asset allocation in the Chinese stock market from the perspective of incorporating return predictability. Based on a host of return predictors, they find significant out-of-sample return predictability in the Chinese stock market. They then examine the performance of active portfolio strategies—such as aggregate market timing as well as industry, size, and value-rotation strategies—designed to profitably exploit return predictability. Strong evidence is found by the authors that these portfolio strategies incorporating return predictability can deliver superior performance—up to 600 basis points per annum and almost double the Sharpe ratios—compared with the passive buy-and-hold benchmarks that …