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Authors
Advisor(s)
Abstract(s)
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.
Description
Keywords
Time-frequency forecast Equity premium Multiresolution analysis
Citation
Faria, G., & Verona, F. (2021). Time-frequency forecast of the equity premium. Quantitative Finance, 21(12), 2119-2135. https://doi.org/10.1080/14697688.2020.1820071
