Forecasting sector stock market returns

We seek to forecast sector stock returns using established predictor variables. Existing empirical evidence focuses on market level data, and thus, data provide fertile ground for research. In addition in-sample predictive regressions, we consider recursive rolling forecasts whether such can be used successfully in a rotation portfolio. The results ten sectors eleven variables highlight that two variables, the default return variance, have significant power across series. Forecast are also supportive of these series (especially return), which outperform benchmark alternative models range metrics. A strategy based produces positive abnormal Sharpe ratio higher than baseline model. An examination at each reveals small number dominate constructed portfolios.