Industry based equity premium forecasts

Nuno Silva ()
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Nuno Silva: University of Coimbra/GEMF

No 2015-19, GEMF Working Papers from GEMF, Faculty of Economics, University of Coimbra

Abstract: In this paper we used industry indexes to predict the equity premium in the US. We considered several types of predictive models: i) constant coefficients and constant volatility, ii) drifting coefficients and constant volatility, iii) constant coefficients and stochastic volatility and iv) drifting coefficients and stochastic volatility. The models were estimated through the particle learning algorithm, which is suitable for dealing with the problem that an investor faces in practice, given that it allows the investor to revise the parameters as new information arrives. All the models exhibit similar statistical predictive ability, but stochastic volatility models generate slightly higher utility gains.

Keywords: equity premium prediction; industries; particle filter; combination of forecasts (search for similar items in EconPapers)
JEL-codes: C11 G11 G14 G17 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2015-12
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Published in Studies in Economics and Finance, 35:3(2018), 426-440

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