February 2006

Should We Expect Significant Out-of-Sample Results When Predicting Stock Returns?

Erik Hjalmarsson

Abstract:

Using Monte Carlo simulations, I show that typical out-of-sample forecast exercises for stock returns are unlikely to produce any evidence of predictability, even when there is in fact predictability and the correct model is estimated.

Full paper (screen reader version)

Keywords: Stock return predictability, Out-of-sample tests

PDF: Full Paper

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Last Update: November 23, 2020