Forecasting stock returns with sum-of-the-parts methodology: international evidence

This study applies and extends the sum-of-the-parts (SOP) method for forecasting stock returns by proposing an adjusted SOP (ASOP) and assessing its performance across 32 developed and emerging markets. It provides a comprehensive evaluation of the SOP methodology’s effectiveness across various markets. It shows ASOP’s improved forecasting accuracy and economic gains for investors, outperforming in 28 countries. This research contributes to the forecasting literature by highlighting ASOP’s effectiveness and practicality with financial and market data. Despite varying performance across markets, the findings suggest ASOP’s potential as a tool for financial analysts and portfolio managers, offering avenues for further research on its applicability in different financial environments.