Predicting Stock Return with Economic Constraint: Can Interquartile Range Truncate the Outliers?

We find that imposing economic constraint on stock return forecasts based the Interquartile Range of equity premium can significantly strengthen predictive performance. Specifically, we construct a judgment mechanism truncates outliers in return. prove our approach realize more accurate information relative to unconstraint from perspective statistics and economics. In addition, new effectively defeat CT CDA strategy. The three mixed models proposed further enhance accuracy prediction, especially model combined with approach. Finally, utilizing help investors obtain considerable gains. With application extension robustness analysis, results are robust.