On the Predictability of Stock Returns in Real Time

Cooper, Michael J.; Gutierrez, Roberto C.; Marcum, Bill

doi:10.1086/427635

Cited by 73 publications

(48 citation statements)

References 54 publications

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“…Also, trading costs have not declined over the latter part of the sample 19 . Given these caveats, it is important to conduct a dynamic analysis of the trading costs by using the methodology of Cooper, Gutierrez, and Marcum (2005). This methodology applies the trading cost estimates from Stoll (1995) to the sample‐specific estimates of KM 20 .…”

Section: Transaction Costsmentioning

confidence: 99%

“…The round-trip proportional bid-ask spread cost for this portfolio calculated over the sample period 1988 through 2002 is 6.06%. The dynamic cost analysis of institutional trading costs using the methodology of Cooper et al (2005) suggests that transactions costs including commissions are 7.17%. The market impact costs (not including commission costs) using the KS methodology amount to 2.89% for an investment portfolio as small as $10,000.…”

Section: Summary Of Transactions Costsmentioning

confidence: 99%

See 1 more Smart Citation

Liquidity and Autocorrelations in Individual Stock Returns

Avramov¹,

Chordia²,

Goyal³

2006

The Journal of Finance

396

136

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This paper documents a strong relationship between short-run reversals and stock illiquidity, even after controlling for trading volume. The largest reversals and the potential contrarian trading strategy profits occur in high turnover, low liquidity stocks, as the price pressures caused by non-informational demands for immediacy are accommodated. However, the contrarian trading strategy profits are smaller than the likely transactions costs. This lack of profitability and the fact that the overall findings are consistent with rational equilibrium paradigms suggest that the violation of the efficient market hypothesis due to short-term reversals is not so egregious after all. Copyright 2006 by The American Finance Association.

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Section: Transaction Costsmentioning

confidence: 99%

Section: Summary Of Transactions Costsmentioning

confidence: 99%

Liquidity and Autocorrelations in Individual Stock Returns

Avramov¹,

Chordia²,

Goyal³

2006

The Journal of Finance

396

136

View full text Add to dashboard Cite

show abstract

“…Therefore, we are not analyzing a trading strategy. However, asCooper et al (2005) note, while the Fama-French three factor model works reasonably well in sample, it does not perform as well outof-sample, and therefore may not be appropriate for use in trading strategies.…”

mentioning

confidence: 96%

Is information risk priced for NASDAQ-listed stocks?

Fuller

Ness

2009

Rev Quant Finan Acc

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Easley et al. (J Finance 57:2185-2221, building upon the asset pricing model of Fama and French (J Finance 47:427-465, 1992), show that the probability of informed trading (PIN) is a determinant of asset returns for NYSE-listed securities. We extend this work by examining whether the PIN is a predictive factor for NASDAQ stocks, as many studies document significant differences between NYSE and NASDAQ listed securities. In the process we examine whether the use of PIN is appropriate for NASDAQlisted securities. We find that PIN and certain stock characteristics correlate differently for our sample of NASDAQ stocks than that of Easley et al. sample of NYSE stocks. We also determine that the risk of informed trading is only weakly priced for NASDAQ stocks. Contrary to Easley et al. we do not find evidence that excess returns increases as PIN increases.

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“…A vast literature has already questioned the possibility of exploiting linear predictability for improving ex post investment performance for short-term portfolios (see Cooper, Gutierrez and Marcum 2005 and references therein), as well as when real estate is considered (see Ling, Naranjo and Ryngaert 2000).…”

Section: Value Of Time Diversificationmentioning

confidence: 99%

Time and Risk Diversification in Real Estate Investments: Assessing the Ex Post Economic Value

Fugazza¹,

Guidolin²,

Nicodano³

2009

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Welfare gains to long-horizon investors may derive from time diversification that exploits nonzero intertemporal return correlations associated with predictable returns. Real estate may thus become more desirable if its returns are negatively serially correlated. While it could be important for long-horizon investors, time diversification has been mostly investigated in asset menus without real estate and focusing on in-sample experiments. This article evaluates, ex post, the out-of-sample gains from diversification when equity real estate investment trusts (REITs) belong to the investment opportunity set. We find that diversification into REITs increases both the Sharpe ratio and the certainty equivalent of wealth for all investment horizons and for both classical and Bayesian (who account for parameter uncertainty) investors. The increases in Sharpe ratios are often statistically significant. However, the out-of-sample average Sharpe ratio and realized expected utility of long-horizon portfolios are frequently lower than that of a one-period portfolio, which casts doubt on the value of time diversification.Institutional investors diversify their portfolios by investing in public real estate. This practice is supported by empirical studies indicating that the risk-return trade-off of optimal portfolios that include real estate improves relative to portfolios that include only standard financial asset classes such as stocks and bonds. However, such evidence mostly refers to in-sample evaluation of portfolio performance, which assumes that portfolio managers know the return distribution far better than they do in the real world. The first goal of this article is to assess whether public real estate improves portfolio performance out of sample, realistically assuming that the portfolio manager chooses asset allocation for the future on the basis only of past information on realized returns, which can be at best recursively updated.

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On the Predictability of Stock Returns in Real Time

Cited by 73 publications

References 54 publications

Liquidity and Autocorrelations in Individual Stock Returns

Liquidity and Autocorrelations in Individual Stock Returns

Is information risk priced for NASDAQ-listed stocks?

Time and Risk Diversification in Real Estate Investments: Assessing the Ex Post Economic Value

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