Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
960245 | Journal of Financial Economics | 2006 | 29 Pages |
Abstract
This paper studies whether incorporating business cycle predictors benefits a real time optimizing investor who must allocate funds across 3,123 NYSE-AMEX stocks and cash. Realized returns are positive when adjusted by the Fama-French and momentum factors as well as by the size, book-to-market, and past return characteristics. The investor optimally holds small-cap, growth, and momentum stocks and loads less (more) heavily on momentum (small-cap) stocks during recessions. Returns on individual stocks are predictable out-of-sample due to alpha variation, whereas the equity premium predictability, the major focus of previous work, is questionable.
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Authors
Doron Avramov, Tarun Chordia,