Download or read book Time frequency Forecast of the Equity Premium written by Gonçalo Faria and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Forecasting the Equity Risk Premium with Frequency Decomposed Predictors written by Gonçalo Faria and published by . This book was released on 2017 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show that the out-of-sample forecast of the equity risk premium can be significantly improved by taking into account the frequency-domain relationship between the equity risk premium and several potential predictors. We consider fifteen predictors from the existing literature, for the out-of-sample forecasting period from January 1990 to December 2014. The best result achieved for individual predictors is a monthly out-of-sample R2 of 2.98% and utility gains of 549 basis points per year for a mean-variance investor. This performance is improved even further when the individual forecasts from the frequency-decomposed predictors are combined. These results are robust for different subsamples, including the Great Moderation period, the Great Financial Crisis period and, more generically, periods of bad, normal and good economic growth. The strong and robust performance of this method comes from its ability to disentangle the information aggregated in the original time series of each variable, which allows to isolate the frequencies of the predictors with the highest predictive power from the noisy parts.
Download or read book New Forecasts of the Equity Premium written by Christopher Polk and published by . This book was released on 2004 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: If investors are myopic mean-variance optimizers, a stock's expected return is linearly related to its beta in the cross section. The slope of the relation is the cross-sectional price of risk, which should equal the expected equity premium. We use this simple observation to forecast the equity-premium time series with the cross-sectional price of risk. We also introduce novel statistical methods for testing stock-return predictability based on endogenous variables whose shocks are potentially correlated with return shocks. Our empirical tests show that the cross-sectional price of risk (1) is strongly correlated with the market's yield measures and (2) predicts equity-premium realizations especially in the first half of our 1927-2002 sample.
Download or read book The Equity Premium Consensus Forecast Revisited written by Ivo Welch and published by . This book was released on 2003 with total page 15 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents the results of a survey of 510 finance and economics professors. The consensus forecast for the 1-year equity premium is about 3% to 3.5%, the consensus forecast for the 30-year equity premium (arithmetic) is about 5% to 5.5%. The consensus 30-year stock market forecast is about 10%. These forecasts are considerably lower than those taken just 3 years ago.
Download or read book Forecast Combination in the Frequency Domain written by Gonçalo Faria and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Predictability is time and frequency dependent. We propose a new forecasting method - forecast combination in the frequency domain - that takes this fact into account. With this method we forecast the equity premium and real GDP growth rate. Combining forecasts in the frequency domain produces markedly more accurate predictions relative to the standard forecast combination in the time domain, both in terms of statistical and economic measures of out-of-sample predictability. In a real-time forecasting exercise, the flexibility of this method allows to capture remarkably well the sudden and abrupt drops associated with recessions and further improve predictability.
Download or read book A Comprehensive Look at the Empirical Performance of Equity Premium Prediction written by Amit Goval and published by . This book was released on 2004 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: Given the historically high equity premium, is it now a good time to invest in the stock market? Economists have suggested a whole range of variables that investors could or should use to predict: dividend price ratios, dividend yields, earnings-price ratios, dividend payout ratios, net issuing ratios, book-market ratios, interest rates (in various guises), and consumption-based macroeconomic ratios (cay). The typical paper reports that the variable predicted well in an *in-sample* regression, implying forecasting ability. Our paper explores the *out-of-sample* performance of these variables, and finds that not a single one would have helped a real-world investor outpredicting the then-prevailing historical equity premium mean. Most would have outright hurt. Therefore, we find that, for all practical purposes, the equity premium has not been predictable, and any belief about whether the stock market is now too high or too low has to be based on theoretical prior, not on the empirically variables we have explored.
Download or read book Out of Sample Equity Premium Prediction written by David Rapach and published by . This book was released on 2009 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: While a host of economic variables have been identified in the literature with the apparent in-sample ability to predict the equity premium, Goyal and Welch (2008) find that these variables fail to deliver consistent out-of-sample forecasting gains relative to the historical average. Arguing that substantial model uncertainty and instability seriously impair the forecasting ability of individual predictive regression models, we recommend combining individual model forecasts to improve out-of-sample equity premium prediction. Combining delivers statistically and economically significant out-of-sample gains relative to the historical average on a consistent basis over time. We provide two empirical explanations for the benefits of the forecast combination approach: (i) combining forecasts incorporates information from numerous economic variables while substantially reducing forecast volatility; (ii) combination forecasts of the equity premium are linked to the real economy.
Download or read book The Time Varying Equity Premium and Secular Bull and Bear Markets of the Twentieth Century written by Mark C. Freeman and published by . This book was released on 2008 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: Low frequency Samp;P 500 index returns over the twentieth century are explained using an asset pricing model in which a time-varying equity premium is driven by regime changes in aggregate consumption volatility.By allowing the equity premium to vary between 3.5% and 8%, depending on perceived consumption risk at the time, the asset pricing model in this paper is better able to match the magnitude of all seven secular bull and bear markets of the last century than a fixed equity premium model. The paper also rejects the notion of significant excess volatility in market returns at annual frequency.The model is especially successful for the period from 1897-1965. There is particularly clear evidence that perceived consumption risk fell dramatically in the 1920s, rose during the Great Depression and fell again following World War II. Both the direction and scale of the secular bull and bear markets that occurred at these times are consistent with the model in this paper.Because of the difficulty of accurately measuring aggregate consumption data in the early twentieth century, there is a possibility that estimated changes in consumption volatility during the 1897-1965 period do not reflect real shifts in macroeconomic risk. To address this concern, the main calibrations in this paper are based on average household income data for the highest income families; a series that is consistently estimated throughout the period. This also allows for the observation that stockholders have historically been those with greatest wealth and income. The results of the paper are broadly consistent whether income or consumption data is used.The main remaining anomaly is the secular bear market of 1966-1981, which is not related to any obviously observed increase in aggregate risk. The end of century bull market appears to represent a return to more natural market levels. This conclusion is strengthened if the well-documented decline in macroeconomic risk in the 1990s is associated with a further fall in the equity premium to 2.5%.The main implication of this paper is that, at the end of the twentieth century, the equity premium lay at very low levels compared to its historic average; most probably in the range 2.5% - 3.5%. The main decline in this variable occurred in the period following World War II, with a further fall in the 1990s being of secondary importance.
Download or read book Special Section Forecasting the Equity Premium written by Matthew Spiegel and published by . This book was released on 2008 with total page 200 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Equity Risk Premium written by William N. Goetzmann and published by Oxford University Press. This book was released on 2006-11-16 with total page 568 pages. Available in PDF, EPUB and Kindle. Book excerpt: What is the return to investing in the stock market? Can we predict future stock market returns? How have equities performed over the last two centuries? The authors in this volume are among the leading researchers in the study of these questions. This book draws upon their research on the stock market over the past two dozen years. It contains their major research articles on the equity risk premium and new contributions on measuring, forecasting, and timing stock market returns, together with new interpretive essays that explore critical issues and new research on the topic of stock market investing. This book is aimed at all readers interested in understanding the empirical basis for the equity risk premium. Through the analysis and interpretation of two scholars whose research contributions have been key factors in the modern debate over stock market perfomance, this volume engages the reader in many of the key issues of importance to investors. How large is the premium? Is history a reliable guide to predict future equity returns? Does the equity and cash flows of the market? Are global equity markets different from those in the United States? Do emerging markets offer higher or lower equity risk premia? The authors use the historical performance of the world's stock markets to address these issues.
Download or read book What is the chance that the equity premium varies over time evidence from predictive regressions written by Jessica Wachter and published by . This book was released on 2011 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the evidence on excess stock return predictability in a Bayesian setting in which the investor faces uncertainty about both the existence and strength of predictability. Departing from previous studies, we do not assume that the regressor is strictly exogenous. When we apply our methods to the dividend-price ratio, we find that even investors who are quite skeptical about the existence of predictability sharply modify their views in favor of predictability when confronted by the historical time series of returns and predictor variables. We find that taking into account the stochastic properties of the regressor has a substantial impact on the investor's inference about returns.
Download or read book Equity Premium Prediction Using Informed Investor Information written by Patrick Launhardt and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Financial Markets and the Real Economy written by John H. Cochrane and published by Now Publishers Inc. This book was released on 2005 with total page 117 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial Markets and the Real Economy reviews the current academic literature on the macroeconomics of finance.
Download or read book A Comprehensive Look at the Empirical Performance of Equity Premium Prediction written by Ivo Welch and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Our article comprehensively reexamines the performance of variables that have been suggested by the academic literature to be good predictors of the equity premium. We find that by and large, these models have predicted poorly both in-sample (IS) and out-of-sample (OOS) for 30 years now; these models seem unstable, as diagnosed by their out-of-sample predictions and other statistics; and these models would not have helped an investor with access only to available information to profitably time the market.
Download or read book A Comprehensive Look at the Empirical Performance of Equity Premium Prediction II written by Amit Goyal and published by . This book was released on 2021 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Predicting the Equity Premium Out of Sample written by John Y. Campbell and published by . This book was released on 2009 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: A number of variables are correlated with subsequent returns on the aggregate US stock market in the 20th Century. Some of these variables are stock market valuation ratios, others reflect patterns in corporate finance or the levels of short- and long-term interest rates. Amit Goyal and Ivo Welch (2004) have argued that in-sample correlations conceal a systematic failure of these variables out of sample: None are able to beat a simple forecast based on the historical average stock return. In this note we show that forecasting variables with significant forecasting power in-sample generally have a better out-of-sample performance than a forecast based on the historical average return, once sensible restrictions are imposed on thesigns of coefficients and return forecasts. The out-of-sample predictive power is small, but we find that it is economically meaningful. We also show that a variable is quite likely to have poor out-of-sample performance for an extended period of time even when the variable genuinely predicts returns with a stable coefficient.
Download or read book The Magazine of Wall Street written by and published by . This book was released on 1909 with total page 596 pages. Available in PDF, EPUB and Kindle. Book excerpt:
