Can Return Forecasts enhance International Asset Allocation?, Professor Andrew Vivian
- Date: Thursday 27 April 2023
- Location: Business School Maurice Keyworth SR (1.32)
- Cost: Free
This month's Accounting and Finance Staff Seminar Series invites Associate Professor of Finance, Andrew Vivian to present his joint research on asset pricing.
In this talk he presents his joint research titled "Can Return Forecasts Enhance International Asset Allocation?"
Andrew has previously held posts as a Lecturer at the University of St Andrews in Scotland, and the University of Durham where he was a Teaching Associate while he studied for his PhD.
His research interests include asset pricing, corporate finance, empirical finance, financial markets, investments, and market efficiency. He currently acts as an Associate Editor at the European Journal of Finance and as an Editor of Cogent Economics and Finance.
We examine whether real-time return forecasts are valuable to an investor looking to allocate their portfolio across a wide selection of countries. We expand the Sum-of-Parts (SoP) method for forecasting stock returns to an international setup by adding foreign exchange returns as an additional component. We use two different methods to calculate the forecasts. The first method (Empirical Mode Decomposition) uses wavelets to frequency decompose each part into locally independent sub-signals, while the second method combines historical averages and predictive regressions. We then compare the performance of various types of portfolio under the SoP and historical average forecasts, with rebalancing taking place every period. We find that SoP forecasts deliver economic gains to an international investor over the historical average, especially when the EMD method is implemented. We further demonstrate that substantial economic gains can be generated for an international investor based in different home countries. Our results are driven by an increase in the forecast performance of each part, most notably the foreign exchange growth rate.
Please contact Professor Shima Amini for more information about the Accounting and Finance Staff Seminar Series – S.Amini@lubs.leeds.ac.uk.