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Do Cross-Sectional Predictors Contain Systematic Information?

2022; Cambridge University Press; Volume: 58; Issue: 3 Linguagem: Inglês

10.1017/s0022109022000266

1756-6916

Joseph Engelberg, R. David McLean, Jeffrey Pontiff, Matthew C. Ringgenberg,

Corporate Finance and Governance

Abstract 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. Using various samples of cross-sectional predictors and accounting for the number of predictors and their interdependence, we find only weak evidence that cross-sectional predictors make good time-series predictors, especially out-of-sample. The results suggest that cross-sectional predictors do not generally contain systematic information.