Do Cross-Sectional Predictors Contain Systematic Information?
Journal of Financial and Quantitative Analysis, Forthcoming
45 Pages Posted: 5 Oct 2019 Last revised: 19 Oct 2021
Date Written: October 18, 2021
Firm-level variables that predict cross-sectional stock returns, such as price-to-earnings and short interest, are often averaged and used to predict market returns. Using various samples of cross-sectional predictors and accounting for the number of predictors and their interdependence, we find only weak evidence that cross-sectional predictors make good time-series predictors, especially out-of-sample. The results suggest that cross-sectional predictors do not generally contain systematic information.
Keywords: Return predictability, data snooping, statistical bias, market risk premium.
JEL Classification: G00, G14, L3, C1
Suggested Citation: Suggested Citation