A Quantile Regression Approach to Equity Premium Prediction
39 Pages Posted: 18 May 2012 Last revised: 27 Feb 2014
Date Written: May 16, 2012
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: Suggested Citation