Predicting Stock Returns on the Basis of Financial and Market Variables
November 29, 2010
The article develops a statistical model for predicting stock returns on the basis of financial and market variables. The article employs Bayesian probabilities under independent variables assumption as statistical methodology. The resulting model yields average excess return of 3.2 percent per month over Russell 3000 index. Another attractive quality of the model is its parsimony: only five variables. The resulting model has the potential to be of practical use in predicting stock returns by both institutional and individual investors.
Number of Pages in PDF File: 8
Keywords: stock returns, financial ratios, stock market, alpha, market inefficiency
JEL Classification: C50, C51, C52, C53working papers series
Date posted: November 30, 2010
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