Are return predictors of industrial equity indexes common across regions?

Bengitöz, Pelin; Umutlu, Mehmet

Abstract

We investigate the potential cross-sectional relationship between several equity index attributes and future returns on country-industry indexes in the regions of North America, Europe, Asia-Pacific, South America, MENA, and Japan. Index attributes include the recently documented predictors in the cross-section of stock or index returns such as return range, maximum and minimum returns in a month, idiosyncratic skewness as well as widely documented predictors at the stock level. Maximum and minimum effects are common for all regions. Return range significantly predicts returns in Europe, Asia-Pacific, and South America after controlling for other index attributes. Standard deviation and idiosyncratic volatility have strong predictive ability in Europe, Asia-Pacific, South America, MENA, and Japan. Intermediate term momentum forecasts returns on North American and European portfolios. Earnings-to-price ratio is cross-sectionally linked to returns in Europe. Portfolio sorts show that the predictive power of significant index attributes increases with decreasing index size.

• Journal Article Type: Article
• Acceptance Date: Apr 4, 2023
• Online Publication Date: May 9, 2023
• Publication Date: 2023-09
• Deposit Date: May 12, 2023
• Publicly Available Date: May 10, 2024
• Journal: Journal of Asset Management
• Print ISSN: 1470-8272
• Electronic ISSN: 1479-179X
• Publisher: Palgrave Macmillan
• Peer Reviewed: Peer Reviewed
• Volume: 24
• Pages: 396–418
• DOI: https://doi.org/10.1057/s41260-023-00313-4
• Keywords: Return predictability; International portfolio management; Industrial equity indexes; Cross-section of index returns