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Stock Index Return Forecast: Information of the Constituents

Monday, 23 January 2012 09:51 Charlie

Research Update: Forthcoming paper in the Economics Letters, 2012

Aurthors: Charlie X. CAI, Khine KYAW,Qi ZHANG

We investigate whether the use of component forecasts improve the accuracy of a portfolio forecast which uses only aggregate data. The results show that the use of component data improves the accuracy of aggregate forecasts. Furthermore, the long-short trading strategy based on the component forecasts always generates substantially higher returns than the buy-and-hold strategy.

JEL classification: G11, G12, G17

Keywords: Index forecasting, Portfolio strategy, Stock returns.

Download the full paper below. Your comments are wellcome.