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Earnings Forecasting in a Global Stock Selection Model and Efficient Portfolio Construction and Management

Published on Apr 1, 2015in International Journal of Forecasting3.39
· DOI :10.2139/ssrn.2552972
John B. Guerard5
Estimated H-index: 5
,
M MarkowitzHarry19
Estimated H-index: 19
,
Ganlin Xu11
Estimated H-index: 11
Abstract
Stock selection models often use analysts’ expectations, momentum, and fundamental data. We find support for composite modeling using these sources of data for global stocks during the period 1997–2011. We also find evidence to support the use of SunGard APT and Axioma multi-factor models for portfolio construction and risk control. Three levels of testing for stock selection and portfolio construction models are developed and estimated. We create portfolios for January 1997–December 2011. We report three conclusions: (1) analysts’ forecast information was rewarded by the global market between January 1997 and December 2011; (2) analysts’ forecasts can be combined with reported fundamental data, such as earnings, book value, cash flow and sales, and also with momentum, in a stock selection model for identifying mispriced securities; and (3) the portfolio returns of the multi-factor risk-controlled portfolios allow us to reject the null hypothesis for the data mining corrections test. The earnings forecasting variable dominates our composite model in terms of its impact on stock selection.
  • References (49)
  • Citations (22)
References49
Newest
#2Svetlozar T. Rachev (SBU: Stony Brook University)H-Index: 40
Last.Yu Mu (SBU: Stony Brook University)H-Index: 1
view all 3 authors...
#1Hui Xia (University of Electronic Science and Technology of China)H-Index: 1
#2Xinyu Min (Georgia Institute of Technology)H-Index: 1
Last.Shijie Deng (Georgia Institute of Technology)H-Index: 1
view all 3 authors...
#1John B. GuerardH-Index: 13
#2Ganlin XuH-Index: 11
Last.Mustafa N. Gültekin (UNC: University of North Carolina at Chapel Hill)H-Index: 4
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Cited By22
Newest
#1Wuyu Wang (CUFE: Central University of Finance and Economics)
#2Weizi Li (University of Reading)
Last.Kecheng Liu (University of Reading)H-Index: 20
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