Predicting the equity premium via its components

Konferenzbeitrag

We propose a refined way of forecasting the equity premium. Our approach rests on the sum-of-parts approach which disaggregates the equity premium into four components. Each of these components is predicted separately, following the approach of Ferreira and Santa-Clara (2011). We extend the set of standard macroeconomic variables by also using technical indicators as predictors. We find that macro indicators best predict the price-earnings multiple, whereas technical indicators better predict earnings growth. Applying this allocation generates superior forecast performance, statistically and economically. Moreover, we show that macroeconomic and technical indicators inform about complementary aspects of the business cycle.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Beiträge zur Jahrestagung des Vereins für Socialpolitik 2016: Demographischer Wandel - Session: Empirical Finance II ; No. E12-V2

Classification and Topics

• Classification: Wirtschaft ; Financial Forecasting and Simulation ; Portfolio Choice; Investment Decisions ; Forecasting Models; Simulation Methods

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bätje, Fabian ; Menkhoff, Lukas
• Event: Veröffentlichung
• (who): ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften, Leibniz-Informationszentrum Wirtschaft
• (where): Kiel und Hamburg
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/145789
• Last update: 10.03.2025, 11:43 AM CET