Factors predicting stock returns – analysis of technical factors in Lithuania equity market

Abstract

Asset management strategies are divided in two main parts: qualitative and quantitative style. The academic literature is showing a growing interest in quantitative equity portfolio management methods. These algorithms vary from the simplest correlation – regression analysis to technically challenging genetic programming algorithms. This paper focuses on the first step of quantitative asset management process – modelling of future stock returns. These models are based on enabling various factors to predict stock returns. The paper provides a detailed analysis of previous researches of forecasting stock returns. It also makes a statistical analysis of some technical factors prediction power of future returns using NASDAQ OMX Vilnius Main List market historical data. Results reveal that historical 3 previous month stock return and 3 previous month historical price volatility are the most significant factors in this research. The prediction power is evaluated by correlation coefficient and coefficients of determination.