Equity premium prediction: keep it sophisticatedly simple
Following the keep-it-sophisticatedly-simple principle, KISS, we propose using the averaging window approach to forecast the market equity premium in unstable environments. First, the estimation methodology of averaging window is a theoretically justified method robust to uncertainties on structural...
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| Format: | Article |
| Language: | English |
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AIMS Press
2021-04-01
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| Series: | Quantitative Finance and Economics |
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| Online Access: | https://www.aimspress.com/article/doi/10.3934/QFE.2021012?viewType=HTML |
| _version_ | 1818872290537897984 |
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| author | Anwen Yin |
| author_facet | Anwen Yin |
| author_sort | Anwen Yin |
| collection | DOAJ |
| description | Following the keep-it-sophisticatedly-simple principle, KISS, we propose using the averaging window approach to forecast the market equity premium in unstable environments. First, the estimation methodology of averaging window is a theoretically justified method robust to uncertainties on structural breaks and estimation window sizes. Second, the averaging window method has the obvious advantages of being understandable to forecast users and simple to implement, thus encouraging engagement and criticism. Our empirical results demonstrate the superior performance of the averaging window when forecasting the U.S. market equity premium, exceeding a wide range of methods which have been shown effective, such as shrinkage estimators and technical indicators. |
| first_indexed | 2024-12-19T12:36:28Z |
| format | Article |
| id | doaj.art-d63f5639b8484414bb3e366e3b966c90 |
| institution | Directory Open Access Journal |
| issn | 2573-0134 |
| language | English |
| last_indexed | 2024-12-19T12:36:28Z |
| publishDate | 2021-04-01 |
| publisher | AIMS Press |
| record_format | Article |
| series | Quantitative Finance and Economics |
| spelling | doaj.art-d63f5639b8484414bb3e366e3b966c902022-12-21T20:21:09ZengAIMS PressQuantitative Finance and Economics2573-01342021-04-015226428610.3934/QFE.2021012Equity premium prediction: keep it sophisticatedly simpleAnwen Yin0A.R. Sanchez, Jr. School of Business, Texas A & M International University, 5201 University Blvd, Laredo, TX 78041, USAFollowing the keep-it-sophisticatedly-simple principle, KISS, we propose using the averaging window approach to forecast the market equity premium in unstable environments. First, the estimation methodology of averaging window is a theoretically justified method robust to uncertainties on structural breaks and estimation window sizes. Second, the averaging window method has the obvious advantages of being understandable to forecast users and simple to implement, thus encouraging engagement and criticism. Our empirical results demonstrate the superior performance of the averaging window when forecasting the U.S. market equity premium, exceeding a wide range of methods which have been shown effective, such as shrinkage estimators and technical indicators.https://www.aimspress.com/article/doi/10.3934/QFE.2021012?viewType=HTMLequity premiumforecast combinationstructural breakaveraging window |
| spellingShingle | Anwen Yin Equity premium prediction: keep it sophisticatedly simple Quantitative Finance and Economics equity premium forecast combination structural break averaging window |
| title | Equity premium prediction: keep it sophisticatedly simple |
| title_full | Equity premium prediction: keep it sophisticatedly simple |
| title_fullStr | Equity premium prediction: keep it sophisticatedly simple |
| title_full_unstemmed | Equity premium prediction: keep it sophisticatedly simple |
| title_short | Equity premium prediction: keep it sophisticatedly simple |
| title_sort | equity premium prediction keep it sophisticatedly simple |
| topic | equity premium forecast combination structural break averaging window |
| url | https://www.aimspress.com/article/doi/10.3934/QFE.2021012?viewType=HTML |
| work_keys_str_mv | AT anwenyin equitypremiumpredictionkeepitsophisticatedlysimple |