On the statistical and economic performance of stock return predictive regression models: an international perspective

Abstract

The predictability of stock returns is assessed in 10 countries using the linear predictive\nregression framework. We use recently developed out-of-sample statistical tests and include\nboth valuation ratios and interest rates as predictive variables. Contrary to previous studies,\nwe explicitly address the issue of the small-sample bias, deal with trading profitability, and\nemploy several risk-adjusted metrics. When statistical forecastability is found, it cannot be\nexploited to consistently deliver abnormal returns across countries and investment horizons.\nWe hold the view that returns are predictable to some extent, but show that such forecasts are\nnot useful for portfolio advice.

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