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

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 signicant 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: 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