Before revision:  With a Bayesian formulation for ensemble learning, we examine the joint predictability as well as portfolio efficiency via predictive distribution. In the empirical analysis of asset-sector allocation, our hierarchical ensemble learning portfolio achieves 500\% cumulative returns in the period 1998-2017, and outperforms most workhorse benchmarks as well as the passive investing index. Our Bayesian inference for model selection identifies useful macro predictors (long-term yield, inflation, and stock market variance) and asset characteristics (dividend yield, accrual, and gross profit). Using the selected model for predicting sector evolution, an equally weighted long-short portfolio on winners over losers achieves a 46\% Sharpe ratio with a significant Jensen's alpha. Finally, we explore an underexploited connection between classical Bayesian forecasting and modern ensemble learning.
After revision:  Our approach includes a joint estimation of conditional expected returns and covariance matrix and considers estimation risk for portfolio analysis. The hierarchical prior allows modeling different assets separately while sharing information across assets. We demonstrate the performance of the U.S. equity market. Though the Bayesian forecast is slightly biased, our BH approach outperforms most alternative methods in point and interval prediction. Our BH approach in sector investment for the recent twenty years delivers a 0.92