2012/10/01 by Abhay Abhyankar, Devraj Basu, Alexander Stremme · 18 citations
Economics, Econometrics and Finance · Mathematics · #Banking stability, regulation, efficiency #Computer science #Credit Risk and Financial Regulations #Econometrics #Economics #Financial Markets and Investment Strategies #Inflation (cosmology) #Machine learning #Mathematics #Predictability #Range (aeronautics) #Sample (material) #Statistics #Term (time) #Value (mathematics)
paper · open access · doi:10.1017/s0022109012000415
published in Journal of Financial and Quantitative Analysis 47(5), 973-1001 (Cambridge University Press)
openalex publication_date 2012/10/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
Abstract In this paper we study the economic value and statistical significance of asset return predictability, based on a wide range of commonly used predictive variables. We assess the performance of dynamic, unconditionally efficient strategies, first studied by Hansen and Richard (1987) and Ferson and Siegel (2001), using a test that has both an intuitive economic interpretation and known statistical properties. We find that using the lagged term spread, credit spread, and inflation significantly improves the risk-return trade-off. Our strategies consistently outperform efficient buy-and-hold strategies, both in and out of sample, and they also incur lower transactions costs than traditional conditionally efficient strategies.