This paper explains cross‐market variations in the degree of return predictability using the extreme bounds analysis (EBA). The EBA addresses model uncertainty in identifying robust determinant(s) of cross‐sectional return predictability. Additionally, the paper develops two profitable trading strategies based on return predictability evidence. The result reveals that among the 13 determinants of the cross‐sectional variation of return predictability, only value of stock traded (a measure of liquidity) is found to have robust explanatory power by Leamer's (1985) EBA. However, Sala‐i‐Martin's (1997) EBA reports that value of stock traded, gross domestic product (GDP) per capita, level of information and communication technology (ICT) development, governance quality, and corruption perception are robust determinants. We further find that a strategy of buying (selling) aggregate market portfolios of the countries with the highest positive (negative) return predictability statistic in the past 24 months generates statistically significant positive returns in the subsequent 3 to 12 months. In the individual country level, a trading rule of buying (selling) the respective country's aggregate market portfolio, when the return predictability statistic turns out positive (negative), outperforms the conventional buy‐and‐hold strategy for many countries.

中文翻译：

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股权收益的可预测性，决定因素和有利可图的交易策略

本文使用极限分析（EBA）解释了跨市场的收益可预测性差异。EBA在确定横截面收益可预测性的可靠决定因素时解决了模型的不确定性。此外，本文基于收益可预测性证据开发了两种有利可图的交易策略。结果表明，在Leamer（1985）的EBA中，只有13个决定收益率横截面变化的决定因素中，只有交易的股票价值（衡量流动性）才具有强大的解释力。但是，Sala-i-Martin（1997）的EBA报告指出，股票交易的价值，人均国内生产总值（GDP），信息和通信技术（ICT）的发展水平，治理质量以及对腐败的看法是有力的决定因素。我们进一步发现，在过去24个月中具有最高（正）（负）回报可预测性统计数据的国家中，购买（出售）总体市场投资组合的策略在随后的3到12个月内产生具有统计意义的正回报。在单个国家/地区级别上，当收益可预测性统计数据显示为正（负）时，购买（出售）相应国家/地区总市场组合的交易规则要优于许多国家的常规并购策略。