Are Monthly Market Returns Predictable?

Jussi Keppo
National University of Singapore – NUS Business School

Tyler Shumway
University of Michigan at Ann Arbor, The Stephen M. Ross School of Business

Daniel Weagley
Georgia Institute of Technology – Scheller College of Business

ABSTRACT

We document significant persistence in the market timing performance of active individual investors, suggesting that some investors are skilled at timing. Using data on all trades by active Finnish individual investors over almost 15 years, we also show that the net purchases of skilled versus unskilled investors predict monthly market returns. Our results lend credibility to the view that market returns are predictable, without having to specify which variables active investors use to successfully time the market.