Predictability of market returns for the UK fs former colonies, protectorates, and mandates
2021
We examine the predictive power of UK market returns relative to the those of countries that were once under strong UK influence. We evaluated the Sharpe ratio of monthly returns and terminal wealth in out-of-sample. The results show that the strategy using UK market returns outperformed those assuming independently and identically distributed for returns and using market returns of other developed countries. This result becomes substantial as the investment period increases. Furthermore, in a three-year holding period, the investment strategy using the UK market return has first-order stochastic dominance over other investment strategies.
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