A1773
Title: International cross industry return predictability: Evidence from the US, UK and China
Authors: Yawen Zheng - University of Liverpool (United Kingdom) [presenting]
Michael Ellington - University of Liverpool (United Kingdom)
Michalis Stamatogiannis - University of Liverpool Management School (United Kingdom)
Abstract: The adaptive LASSO and Double LASSO from the statistical learning literature are used to identify economic links between domestic and international industry portfolios. The frameworks allow for complex international industry interdependencies. We find extensive evidence that lagged returns of foreign industries are important when forecasting domestic ones, which is consistent with the gradual diffusion of information hypothesis. We show this using a set of three trading partners, the US, UK and China. In response to the out of sample critique in the stock return predictability literature, we find that utilising a combination forecasting approach with the international information leads to significant out of sample gains.
