Research articles for the 2019-10-05

Are Cross-Sectional Predictors Good Market-Level Predictors?
Engelberg, Joseph,McLean, R. David,Pontiff, Jeffrey ,Ringgenberg, Matthew
SSRN
Firm-level variables that predict cross-sectional stock returns, such as price-to-earnings and short interest, are often averaged and used to predict market returns. We extend this literature and limit the data-snooping bias by using a near-complete population of the literature’s cross-sectional return predictors. We find the literature has ignored several cross-sectional variablesâ€"such as asset turnover and Z-scoreâ€"that contain strong in-sample predictability when examined in isolation. However, after accounting for the number of predictors and their interdependence, we find little evidence that cross-sectional predictors make good time-series predictors, especially out of sample.