Decision Sciences
4 years ago

New method predicts stock returns, term spread key factor.

SSRN Electronic Journal
Small-Sample Tests for Stock Return Predictability with Possibly Non-Stationary Regressors and GARCH-Type Effects
Sermin Gungor, Richard Luger

Paper Summary

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Researchers developed a new test to see if certain factors can predict stock returns. They found that the term spread can predict excess stock returns from 1948 to 2014, but this ability is weaker in certain time periods. The test works even with small amounts of data and when stock returns have unusual patterns.