FRB: Should We Expect Significant Out-of-Sample Results When Predicting Stock Returns?

International Finance Discussion Papers

Should We Expect Significant Out-of-Sample Results When Predicting Stock Returns?
Erik Hjalmarsson
2006-855 (February 2006)

Abstract: Using Monte Carlo simulations, I show that typical out-of-sample forecast exercises for stock returns are unlikely to produce any evidence of predictability, even when there is in fact predictability and the correct model is estimated.

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Keywords
Stock return predictability, Out-of-sample tests

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Last update: March 22, 2006