The development of efficient portfolios in Japan with particular emphasis on sales and earnings forecasting

Abstract

In this study, we show that earnings forecasting creates an index-tracking portfolio that dominates the historical model trade-off curve. We find that using Toyo Keizai earnings forecasts improves geometric means by over 300 basis points compared to the historical model. Weighted latent root regression is used in this study to create portfolios that have outperformed the Japanese market in backtest and in real-time performance.