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Predicting the Equity Premium with Combination Forecasts: A Reappraisal

Sebastian Denk & Günter Löffler

Review of Asset Pricing Studies2024https://doi.org/10.1093/rapstu/raae009article
AJG 3ABDC A*
Weight
0.57

Abstract

This paper reappraises the usefulness of combining individual forecasts for predicting the U.S. equity premium. For comparison, we also consider penalized regression and dimension reduction approaches. We fail to find evidence of predictive ability in recent decades, regardless of the forecasting method used. Further analysis shows that an increase in the correlation of individual forecast errors is an important factor in the declining performance of combination forecasts.

6 citations

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https://doi.org/https://doi.org/10.1093/rapstu/raae009

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@article{sebastian2024,
  title        = {{Predicting the Equity Premium with Combination Forecasts: A Reappraisal}},
  author       = {Sebastian Denk & Günter Löffler},
  journal      = {Review of Asset Pricing Studies},
  year         = {2024},
  doi          = {https://doi.org/https://doi.org/10.1093/rapstu/raae009},
}

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Predicting the Equity Premium with Combination Forecasts: A Reappraisal

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Evidence weight

0.57

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.62 × 0.4 = 0.25
M · momentum0.65 × 0.15 = 0.10
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.