Abstract
<h3>Practical Applications Summary</h3> In <b>Regime Shifts in Excess Stock Return Predictability: <i>An Out-of-Sample Portfolio Analysis</i></b>, published in the Winter 2018 issue of <b><i>The Journal of Portfolio Management</i></b>, <b>Giulia Dal Pra, Massimo Guidolin, Manuela Pedio</b>, and <b>Fabiola Vasile</b> analyze whether one can outperform the stock market using asset allocation strategies based on certain financial ratios as signals. They construct linear regressions relating excess returns to selected ratios. They explore both ordinary linear regressions and ones that embody a Markov-switching (regime switching) feature. They assess performance of the strategies over several investment time horizons and include the effect of transaction costs. The authors also consider the efficacy of their strategies in an economic framework that accounts for an investor’s degree of risk aversion. <b>TOPICS:</b>Analysis of individual factors/risk premia, in markets, portfolio theory
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