Time-frequency forecast of the equity premium
Faria, Gonçalo; Verona, Fabio (23.10.2020)
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Volyymi
21Numero
12 ; 2021
2021
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:bof-202109131501Tiivistelmä
Any time series can be decomposed into cyclical components fluctuating at different frequencies. Accordingly, in this paper, we propose a method to forecast the equity premium which exploits the frequency relationship between the equity premium and several predictor variables. We evaluate a large set of models and find that, by selecting the relevant frequencies for equity premium forecasting purposes, this method significantly improves in a statistical and economic way upon standard time series forecasting methods. This outperformance is robust regardless of the predictor used, the out-of-sample period considered, and the frequency of the data used.
Julkaisuhuomautus
Published also as BoF DP 6/2020