This paper provides empirical evidence on predictable time variations in out-of-sample bond return predictability. Bond predictability is associated with periods of high (low) economic activity (uncertainty), which implies that violations the expectations hypothesis are state dependent and linked to features business cycle. These dependencies predictability, established by introducing a new mul...

Investors’ search for successful forecasting models leads the data generating process for financial returns to change over time which means that individual return forecasting models can at best hope to uncover evidence of ‘local’ predictability. We illustrate this point on a suite of forecasting models used to predict US stock returns and propose an adaptive forecast combination approach. Most ...

We propose a new approach to forecasting stock returns in the presence of structural breaks that simultaneously affect the parameters of multiple portfolios. Exploiting information in the cross-section increases our ability to identify breaks in return prediction models and enables us to detect breaks more rapidly in real time, thereby allowing the parameters of the predictive return regression...

Return predictability may be hidden from view if the same information has different meanings at different times, especially if information is good news in one state but bad news in another. We illustrate, using price changes in industrial metals, how conclusions on stock market return predictability vary with the number of expansions and contractions in our sample. We also show how state-switch...