Forecasting US aggregate stock market excess return : do functional data analysis add economic value?

dc.contributor.authorCaldeira, Joao F.
dc.contributor.authorGupta, Rangan
dc.contributor.authorTorrent, Hudson S.
dc.date.accessioned2021-06-18T13:54:18Z
dc.date.available2021-06-18T13:54:18Z
dc.date.issued2020-11-16
dc.description.abstractThis paper analyzes the forecast performance of historical S&P500 and Dow Jones Industrial Average (DJIA) excess returns while using nonparametric functional data analysis (NP-FDA). The empirical results show that the NP-FDA forecasting strategy outperforms not only the the prevailing-mean model, but also the traditional univariate predictive regressions with standard predictors used in the literature and, most cases, also combination approaches that use all predictors jointly. In addition, our results clearly have important implications for investors, from an asset allocation perspective, a mean-variance investor realizes substantial economic gains. Indeed, our results show that NP-FDA is the only one individual model that can overcome the historical average forecasts for excess returns in statistically and economically significant manners for both S&P500 and DJIA during the entire period, NBER recession, and expansions periods.en_ZA
dc.description.departmentEconomicsen_ZA
dc.description.librarianam2021en_ZA
dc.description.urihttp://www.mdpi.com/journal/mathematicsen_ZA
dc.identifier.citationCaldeira, J.F., Gupta, R. & Torrent, H.S. 2020, 'Forecasting US aggregate stock market excess return : do functional data analysis add economic value?', Mathematics, vol. 8, no. 11, art. 2042, pp. 1-16.en_ZA
dc.identifier.issn2227-7390
dc.identifier.other10.3390/math8112042
dc.identifier.urihttp://hdl.handle.net/2263/80380
dc.language.isoenen_ZA
dc.publisherMDPIen_ZA
dc.rights© 2020 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license.en_ZA
dc.subjectReturn forecasten_ZA
dc.subjectPerformance evaluationen_ZA
dc.subjectPredictive regressionen_ZA
dc.subjectClassical financial mathematicsen_ZA
dc.subjectNonparametric functional data analysis (NP-FDA)en_ZA
dc.titleForecasting US aggregate stock market excess return : do functional data analysis add economic value?en_ZA
dc.typeArticleen_ZA

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