Out-of-Sample Equity Premium Prediction: Economic Fundamentals Vs. Moving-Average Rules

• Main Authors: Neely, Christopher, Rapach, David, TU, Jun, Zhou, Guofu
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2010
• Subjects: Equity premium predictability; Economic variables; Moving-average rules; Out of sample forecasts; Asset allocation; Mean-variance investor; Business cycle; Habit formation; Finance and Financial Management; Portfolio and Security Analysis
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research_smu/18; https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1017&context=lkcsb_research_smu
• Institution: Singapore Management University

This paper analyzes the ability of both economic variables and moving-average rules to forecast the monthly U.S. equity premium using out-of-sample tests for 1960-2008. Both approaches provide statistically and economically significant out-of-sample forecasting gains, which are concentrated in U.S....