We forecast stock return volatility by using the partial least squares approach that extract a powerful predictor from data-rich environment. Empirical results indicate that the new index has superior out-of-sample forecasting performance than the existing indexes, and the discovery is consistent with the in-sample predictive power. Specifically, the application of the new-index is extended to the allocation of investment portfolios to support mean–variance investors obtain considerable economic gains. In addition, our results are robust to va...
