This paper makes three contributions to the literature on predictability stock returns in the Korean stock market. We focus on out-of-sample forecasting of returns based on industry portfolios are predictability. From the results, we discover that in-sample and out-of-sample test during from 2000 to 2015, predictability is not homogeneous. Furthermore, we examine the determinants of out-of-sample predictability for each sector using industry characteristics and find strong evidence that return predictability has links to certain industry characteristics, such as book-to-market ratio, dividend yield, size, price earnings ratio, and trading volume. We also discover a mean combination forecast approach which has significant out-of-sample performance.
Keywords: Stock returns, Predictability, Korean stock market
