Fama French Factors and US Stock Return Predictability

25 Pages Posted: 12 Apr 2011

See all articles by Ekaterini Panopoulou

Ekaterini Panopoulou

Essex Business School

Sotiria Plastira

University of Piraeus - Department of Statistics and Insurance Science

Date Written: March 30, 2011

Abstract

This paper investigates whether the HML, the SMB along with the short-term reversal, the long-term reversal and the momentum factors exhibit both in-sample and out-of-sample forecasting ability for the US stock returns. Our findings suggest that these factors contain significantly more information for future stock market returns than the typically employed financial variables. We also go one step further and test whether these variables can proxy for the aforementioned factors. Our results suggest that the default spread and to a lesser extent the term spread contain important information for the evolution of the factors examined.

Keywords: ICAPM, Fama French factors, Out-of-sample forecasts, Stock return predictability

JEL Classification: C53, G12

Suggested Citation

Panopoulou, Ekaterini and Plastira, Sotiria, Fama French Factors and US Stock Return Predictability (March 30, 2011). Available at SSRN: https://ssrn.com/abstract=1804927 or http://dx.doi.org/10.2139/ssrn.1804927

Ekaterini Panopoulou (Contact Author)

Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Sotiria Plastira

University of Piraeus - Department of Statistics and Insurance Science ( email )

80 Karaoli & Dimitriou str.
Piraeus, 18534
Greece

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