The High Resolution Term Structure of Stock Return Predictability
Log in to collectAcademic paper
The High Resolution Term Structure of Stock Return Predictability
Spyros Skouras
- GRAthens University of Economics and Business
- ?Athens University of Economics and Business - Department of International and European Economic Studies
Strategy in a nutshell
The HiRes trading strategy invests in US common stocks listed on NYSE, Amex, or NASDAQ. It uses an AR-Midas model with 1600 daily lags to forecast monthly returns, ranks stocks into deciles, and forms value-weighted long-short portfolios. The strategy buys top-decile stocks and shorts bottom-decile stocks, with monthly rebalancing, leveraging out-of-sample forecasts to generate predictable returns.
Economic rationale
High-resolution term structure analysis allows precise modeling of return dynamics. By capturing daily return information over long horizons, the AR-Midas forecasts exploit predictability in stock returns, enhancing portfolio selection and improving risk-adjusted performance.