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On the Predictability of Stock Returns in Real Time

Michael Cooper, Roberto C. Gutierrez, Jr. and Bill Marcum
The Journal of Business
Vol. 78, No. 2 (March 2005), pp. 469-500
DOI: 10.1086/427635
Stable URL:
Page Count: 32
Subjects: Business Finance
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On the Predictability of Stock Returns in Real Time
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Researchers have documented an abundance of evidence that stock returns are predictable ex post facto. In this study, we address the ex ante predictability of the cross section of stock returns by investigating whether a real‐time investor could have used book‐to‐market equity, firm size, and one‐year lagged returns to generate portfolio profits during the 1974–97 period. We develop variations on common recursive out‐of‐sample methods and demonstrate a marked difference between ex post and ex ante predictability, suggesting that the current notion of predictability in the literature is exaggerated.

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