Combination Forecasts of Bond and Stock Returns: An Asset Allocation Perspective

34 Pages Posted: 1 Mar 2014

See all articles by Ekaterini Panopoulou

Ekaterini Panopoulou

Essex Business School

Sotiria Plastira

University of Piraeus - Department of Statistics and Insurance Science

Date Written: February 14, 2014

Abstract

We investigate the out-of-sample forecasting ability of the HML, SMB, momentum, short-term and long-term reversal factors along with their size and value decompositions on U.S. bond and stock returns for a variety of horizons ranging from the short run (1 month) to the long run (2 years). Our findings suggest that these factors contain significantly more information for future bond and stock market returns than the typically employed financial variables. Combination of forecasts of the empirical factors turns out to be particularly successful, especially from an an asset allocation perspective. Similar findings pertain to the European and Japanese markets.

Keywords: Combination forecasts, Fama French factors, Stock return predictability, Bond return predictability, Asset allocation

JEL Classification: C53, G11, G12

Suggested Citation

Panopoulou, Ekaterini and Plastira, Sotiria, Combination Forecasts of Bond and Stock Returns: An Asset Allocation Perspective (February 14, 2014). Available at SSRN: https://ssrn.com/abstract=2402286 or http://dx.doi.org/10.2139/ssrn.2402286

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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