Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: THEend8_
Finance Research Letters
Highlights The aggressive stock-selection opportunity is defined by the average of cross-sectional stocks’ positive alphas plus idiosyncratic volatilities. The change of aggressive stock-selection opportunity ( ) can significantly and negatively predict stock market returns. The aggressive stock-selection opportunities in the market have stronger predictive information rather than the moderate stock-selection opportunities. The predictive role of is not induced by the potential predictive power of the average of positive alphas and the average of idiosyncratic volatilities.
Abstract We propose a measurement of aggressive stock-selection opportunity based on positive alphas and idiosyncratic volatilities of cross-section stocks, and examine the role of aggressive stock-selection opportunity in predicting stock market returns. For the US stock market, we find that the change of aggressive stock-selection opportunity has a significant and negative coefficient for predicting future one-month market returns. The out-of-sample results also show the change of aggressive stock-selection opportunity improves the return forecasting performance and increases investors’ economic values. In particular, the predictive information of the change of aggressive stock-selection opportunity is independent of traditional macroeconomic predictors.