Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/300646 
Authors: 
Year of Publication: 
2024
Series/Report no.: 
SAFE Working Paper No. 424
Publisher: 
Leibniz Institute for Financial Research SAFE, Frankfurt a. M.
Abstract: 
Cross-predictability denotes the fact that some assets can predict other assets' returns. I propose a novel performance-based measure that disentangles the economic value of cross-predictability into two components: the predictive power of one asset's signal for other assets' returns (cross-predictive signals) and the amount of an asset's return explained by other assets' signals (cross-predicted returns). Empirically, the latter component dominates the former in the overall cross-prediction effects. In the crosssection, cross-predictability gravitates towards small firms that are strongly mispriced and difficult to arbitrage, while it becomes more difficult to cross-predict returns when market capitalization and book-to-market ratio rise.
Subjects: 
Empirical Asset Pricing
Portfolio Choice
Expected Returns
Cross-Predictability
JEL: 
C58
G11
G12
G14
Document Type: 
Working Paper

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