The optimal use of return predictability: an empirical study

Abhay Abhyankar, Devraj Basu, Alexander Stremme

Research output: Contribution to journalArticlepeer-review

8 Citations (Scopus)


In this paper we study the economic value and statistical significance of asset return predictability, based on a wide range of commonly used predictive variables. We assess the performance of dynamic, unconditionally efficient strategies, first studied by Hansen and Richard (1987) and Ferson and Siegel (2001), using a test that has both an intuitive economic interpretation and known statistical properties. We find that using the lagged term spread, credit spread, and inflation significantly improves the risk-return trade-off. Our strategies consistently outperform efficient buy-and-hold strategies, both in and out of sample, and they also incur lower transactions costs than traditional conditionally efficient strategies.

Original languageEnglish
Pages (from-to)973 - 1001
Number of pages28
JournalJournal of Financial and Quantitative Analysis
Issue number5
Publication statusPublished - 4 Oct 2012


  • empirical study
  • asset return predictability
  • efficient strategies


Dive into the research topics of 'The optimal use of return predictability: an empirical study'. Together they form a unique fingerprint.

Cite this