Out-of-Sample Equity Premium Prediction: A Complete Subset Quantile Regression Approach

47 Pages Posted: 4 Oct 2013

See all articles by Loukia Meligkotsidou

Loukia Meligkotsidou

National Kapodistrian University of Athens

Ekaterini Panopoulou

Essex Business School

Ioannis D. Vrontos

Athens University of Economics and Business

Spyridon D. Vrontos

University of Piraeus - Department of Statistics and Insurance Science

Date Written: October 2, 2013

Abstract

This paper extends the complete subset linear regression framework to a quantile regression setting. We employ complete subset combinations of quantile forecasts in order to construct robust and accurate equity premium predictions. Our recursive algorithm that selects, in real time, the best complete subset for each predictive regression quantile succeeds in identifying the best subset in a time- and quantile-varying manner. We show that our approach delivers statistically and economically signi┬ůcant out-of-sample forecasts relative to both the historical average benchmark and the complete subset mean regression approach.

Keywords: Equity premium, Forecast combination, Predictive quantile regression, Robust point forecasts, Subset quantile regressions

JEL Classification: G11, G12, C22, C53

Suggested Citation

Meligkotsidou, Loukia and Panopoulou, Ekaterini and Vrontos, Ioannis D. and Vrontos, Spyridon D., Out-of-Sample Equity Premium Prediction: A Complete Subset Quantile Regression Approach (October 2, 2013). Available at SSRN: https://ssrn.com/abstract=2335084 or http://dx.doi.org/10.2139/ssrn.2335084

Loukia Meligkotsidou

National Kapodistrian University of Athens ( email )

5 Stadiou Strt
Athens, 12131
Greece

Ekaterini Panopoulou (Contact Author)

Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Ioannis D. Vrontos

Athens University of Economics and Business ( email )

76 Patission Street
Athens, 104 34
Greece

Spyridon D. Vrontos

University of Piraeus - Department of Statistics and Insurance Science ( email )

80 Karaoli & Dimitriou str.
Piraeus, 18534
Greece

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