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The Role of Partisan Conflict in Forecasting the U.S. Equity Premium: A Nonparametric Approach

Rangan Gupta (), John Weirstrasd Muteba Mwamba () and Mark Wohar ()

No 201686, Working Papers from University of Pretoria, Department of Economics

Abstract: Information on partisan conflict is shown to matter in forecasting the U.S. equity premium, especially when accounting for omitted nonlinearities in their relationship, via a nonparametric predictive regression approach over the monthly period 1981:1-2016:6. Unlike as suggested by a linear predictive model, the nonparametric functional coefficient regression that includes the partisan conflict index, enhances significantly the out-of-sample excess stock returns predictability.

Keywords: : Equity Premium; Partisan Conflict Index; Linear and Nonparametric Predictive Regressions (search for similar items in EconPapers)
JEL-codes: C14 C22 C53 G1 G18 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-for and nep-ore
Date: 2016-12
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