Structural Breaks and Predictive Regressions Models of South African Equity Premium

Goodness Aye (), Rangan Gupta and Mampho Modise ()
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Goodness Aye: Department of Agricultural Economics, University of Agriculture, Makurdi, Nigeria
Mampho Modise: Department of Economics, University of Pretoria

No 201209, Working Papers from University of Pretoria, Department of Economics

Abstract: In this paper, we test for the structural stability of both bivariate and multivariate predictive regression models for equity premium in South Africa over the period of 1990:01 to 2010:12, based on 23 financial and macroeconomic variables. We employ a wide range of methodologies, namely, the popular Andrews (1993) statistic and the Bai (1997) subsample procedure in conjunction with the Hansen (2000) heteroskedastic fixed-regressor bootstrap. We also used the Elliott and Muller (2003) statistic and Bai and Perron (1998, 2003a, 2004) methodologies. We find strong evidence of at least two structural breaks in 22 of 23 bivariate predictive regression models. We also obtain evidence of structural instability in the multivariate predictive regression models of equity premium. Our results also show that the predictive ability of the 23 variables can vary widely across different regimes.

Keywords: Predictive regression model; equity premium; structural breaks; South Africa (search for similar items in EconPapers)
JEL-codes: C22 C52 C53 G12 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2012-03
New Economics Papers: this item is included in nep-afr
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201209

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