Equity premium prediction: Are economic and technical indicators unstable?

Fabian Baetje and Lukas Menkhoff

International Journal of Forecasting, 2016, vol. 32, issue 4, 1193-1207

Abstract: We show that technical indicators deliver stable economic value in predicting the US equity premium over the out-of-sample period from 1966 to 2014. The results tentatively improve over time, and beat alternatives over a large continuum of sub-periods. In contrast, economic indicators work well only until the 1970s, but lose predictive power thereafter, even when considering the last crisis. Translating the predictive power of technical indicators into a standard investment strategy delivers an annualized average Sharpe ratio of 0.55 p.a. (after transaction costs) for investors who entered the market at any point in time.

Keywords: Equity premium predictability; Economic indicators; Technical indicators; Break tests (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (29)

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Related works:
Working Paper: Equity Premium Prediction: Are Economic and Technical Indicators Unstable? (2016)
Working Paper: Equity premium prediction: Are economic and technical indicators instable? (2015)
Working Paper: Equity premium prediction: Are economic and technical indicators instable? (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfor:v:32:y:2016:i:4:p:1193-1207

DOI: 10.1016/j.ijforecast.2016.02.006

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