eprintid: 10152947 rev_number: 28 eprint_status: archive userid: 699 dir: disk0/10/15/29/47 datestamp: 2022-07-29 09:49:25 lastmod: 2023-06-28 12:43:13 status_changed: 2022-07-29 09:49:25 type: working_paper metadata_visibility: show sword_depositor: 699 creators_name: Chondrogiannis, Ilias creators_name: Vivian, Andrew creators_name: Wohar, Mark E title: Can Return Forecasts enhance International Asset Allocation? Evidence from the Sum-of-Parts Approach ispublished: pub divisions: UCL divisions: D92 divisions: B03 keywords: Return forecasting, Sum of Parts, Global asset allocation, EMD, International portfolio optimisation abstract: We examine whether real-time return forecasts are valuable to an investor looking to allocate their portfolio across a wide selection of countries. We expand the Sum-of-Parts (SoP) method for forecasting stock returns to an international setup by adding foreign exchange returns as an additional component. We use two different methods to calculate the forecasts. The first method (Empirical Mode Decomposition) uses wavelets to frequency decompose each part into locally independent sub-signals, while the second method combines historical averages and predictive regressions. We then compare the performance of various types of portfolia under the SoP and historical average forecasts, with rebalancing taking place every period. We find that SoP forecasts deliver economic gains to an international investor over the historical average, especially when the EMD method is implemented. We further demonstrate that substantial economic gains can be generated for an international investor based in different home countries. Our results are driven by an increase in the forecast performance of each part, most notably the foreign exchange growth rate. date: 2022-07-28 date_type: published publisher: UCL School of Slavonic and East European Studies (SSEES) official_url: https://www.ucl.ac.uk/ssees/ oa_status: green full_text_type: other language: eng primo: open primo_central: open_green verified: verified_manual elements_id: 1967630 doi: 10.14324/000.wp.10152947 lyricists_name: Chondrogiannis, Ilias lyricists_id: ICHON36 actors_name: Chondrogiannis, Ilias actors_name: Allington-Smith, Dominic actors_id: ICHON36 actors_id: DAALL44 actors_role: owner actors_role: impersonator full_text_status: public place_of_pub: London, UK pages: 35 citation: Chondrogiannis, Ilias; Vivian, Andrew; Wohar, Mark E; (2022) Can Return Forecasts enhance International Asset Allocation? Evidence from the Sum-of-Parts Approach. UCL School of Slavonic and East European Studies (SSEES): London, UK. Green open access document_url: https://discovery.ucl.ac.uk/id/eprint/10152947/7/Chondrogiannis_CVW%2028-6.pdf