[Journal:] Swiss Journal of Economics and Statistics [ISSN:] 2235-6282 [Volume:] 146 [Year:] 2010 [Issue:] 3 [Pages:] 553-576
The size premium, defined as the return differential between shares of small and large companies, is subject to cyclical fluctuations. This study examines the predictability of this premium for the Swiss stock market applying a new and flexible forecasting approach. Our strategies provide promising information ratios. The results show that risk variables (VIX, TED spread, etc.), the performance of the S&P 500 and statistical variables such as AR(1) terms or trends prove to be successful forecasting variables in our algorithm. Furthermore, variables that sum up the consensus estimates of equity analysts (IBES) make valuable forecast contributions.