Predicting the equity premium around the globe

Comprehensive evidence from a large sample

authored by

Fabian Hollstein, Marcel Prokopczuk, Björn Tharann, Chardin Wese Simen

Abstract

Examining 81 countries over a period of up to 145 years and using various predictor variables and forecasting specifications, we provide a detailed analysis of equity premium predictability. We find that excess returns are more predictable in emerging and frontier markets than in developed markets. For all groups, forecast combinations perform very well out of sample. Analyzing the cross-section of countries, we find that market inefficiency is an important driver of return predictability. We also document significant cross-market return predictability. Finally, domestic inflation-adjusted returns are significantly more predictable than USD returns.

Organisation(s)

Institute of Finance and Commodity Markets

External Organisation(s)

Saarland University
University of Reading
University of Liverpool

Type

Article

Journal

International Journal of Forecasting

Volume

41

Pages

208-228

No. of pages

21

ISSN

0169-2070

Publication date

08.06.2024

Publication status

E-pub ahead of print

Peer reviewed

Yes

ASJC Scopus subject areas

Business and International Management

Electronic version(s)

https://doi.org/10.2139/ssrn.3567622 (Access: Open)
https://doi.org/10.1016/j.ijforecast.2024.05.002 (Access: Open)