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Equity Return Predictability with the ICAPM

Michael Hasler & Charles Martineau

Review of Asset Pricing Studies2024https://doi.org/10.1093/rapstu/raae007article
AJG 3ABDC A*
Weight
0.53

Abstract

This paper highlights a positive and significant beta-return relationship in high expected market return states, as suggested by the ICAPM. The ICAPM has strong out-of-sample predictive power for equity returns. As a result, timing strategies exploiting this predictive power have Sharpe ratios about double those of the buy-and-hold strategies, alphas of about 5% per annum, and average returns increasing sharply with unconditional betas. Our findings relate to the positive beta-return relation uncovered overnight, on macroeconomic announcement days, and in low inflation times because these periods share an important common feature: high market returns. (JEL D53, G11, G12)

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https://doi.org/https://doi.org/10.1093/rapstu/raae007

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@article{michael2024,
  title        = {{Equity Return Predictability with the ICAPM}},
  author       = {Michael Hasler & Charles Martineau},
  journal      = {Review of Asset Pricing Studies},
  year         = {2024},
  doi          = {https://doi.org/https://doi.org/10.1093/rapstu/raae007},
}

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Evidence weight

0.53

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.53 × 0.4 = 0.21
M · momentum0.63 × 0.15 = 0.09
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

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