Are individual stock returns predictable?. Issue 1 (February 2022)

• Record Type: Journal Article
• Authors: Zeng, Hui; Marshall, Ben R; Nguyen, Nhut H; Visaltanachoti, Nuttawat
• Is Part Of: Australian journal of management. Volume 47:Issue 1(2022)
• Page Start: 135
• Page End: 162
• Publication Date: 2022-02
• Subjects: Business cycle -- cross-sectional predictability -- firm-level predictability -- limits to arbitrage -- macroeconomic and technical predictors -- principal component analysis; Management -- Periodicals; Management -- Australia -- Periodicals; Business enterprises -- Finance -- Periodicals; Industrial management -- Australia -- Periodicals; 330
• DOI: 10.1177/03128962211001509
• Languages: English
• ISSNs: 0312-8962

Abstract

We show that the previously documented predictability of macroeconomic and technical variables for market returns is also evident in individual stock returns. Technical variables generate better predictability on firms with high limits to arbitrage (small, illiquid, volatile firms), while macroeconomic variables better predict firms with low limits to arbitrage. Technical predictors show a stronger predictive power for high limits to arbitrage firms across the business cycle, whereas macroeconomic variables capture more predictive information for firms with low limits to arbitrage during recessions. JEL Classification:C58, E32, G11, G12, G17