Predicting the equity market risk premium: A model selection approach

Cetin Ciner

Economics Letters, 2022, vol. 215, issue C

Abstract: We present a novel approach to investigate US stock return predictability. Our analysis utilizes the best subset method to construct a single predictive regression from a set of fundamental factors and hence, it is robust to data snooping. We consider models with non-Gaussian distributions as a first in the literature. We find that our selected predictive regression is Student’s t-distributed and has both in sample and out of sample forecasting power, with a high degree of economic significance.

Keywords: Equity market risk premium; Forecasting; Model selection (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:215:y:2022:i:c:s0165176522000970

DOI: 10.1016/j.econlet.2022.110448

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