A Quantile Regression Approach to Equity Premium Prediction

39 Pages Posted: 18 May 2012 Last revised: 27 Feb 2014

See all articles by Loukia Meligkotsidou

Loukia Meligkotsidou

National and Kapodistrian University of Athens

Ekaterini Panopoulou

Essex Business School

Ioannis D. Vrontos

Athens University of Economics and Business

Spyridon D. Vrontos

University of Piraeus - Department of Statistics and Insurance Science

Date Written: May 16, 2012

Abstract

We propose a quantile regression approach to equity premium forecasting. Robust point forecasts are generated by both fixed and time-varying weighting schemes, thus exploiting the entire distributional information associated with each predictor. Further gains are achieved by incorporating the forecast combination methodology in our quantile regression setting. Our approach using a time-varying weighting scheme delivers statistically and economically significant out-of-sample forecasts relative to the historical average benchmark and the combined mean predictive regression modeling approach.

Keywords: Conditional Quantiles, Equity Premium, Forecast Combination, Prediction, Time varying weights

JEL Classification: G11, G12, C22, C53

Suggested Citation

Meligkotsidou, Loukia and Panopoulou, Ekaterini and Vrontos, Ioannis D. and Vrontos, Spyridon D., A Quantile Regression Approach to Equity Premium Prediction (May 16, 2012). Available at SSRN: https://ssrn.com/abstract=2061036 or http://dx.doi.org/10.2139/ssrn.2061036

Loukia Meligkotsidou

National and Kapodistrian University of Athens ( email )

5 Stadiou Strt
Athens, 12131
Greece

Ekaterini Panopoulou (Contact Author)

Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Ioannis D. Vrontos

Athens University of Economics and Business ( email )

76 Patission Street
Athens, 104 34
Greece

Spyridon D. Vrontos

University of Piraeus - Department of Statistics and Insurance Science ( email )

80 Karaoli & Dimitriou str.
Piraeus, 18534
Greece

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