Predicting the Equity Premium around the Globe: Comprehensive Evidence from a Large Sample

66 Pages Posted: 27 Apr 2020 Last revised: 22 Aug 2023

See all articles by Fabian Hollstein

Fabian Hollstein

Saarland University

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management; University of Reading - ICMA Centre

Björn Tharann

Leibniz Universität Hannover

Chardin Wese Simen

University of Liverpool Management School

Date Written: April 3, 2020

Abstract

Examining 81 countries over a period of up to 145 years, using various predictor variables and forecasting specifications, we provide a detailed analysis of equity premium predictability. We find that excess returns are more predictable in emerging and frontier markets than in developed markets. For all groups, forecast combinations perform very well out-of-sample. Analyzing the cross-section of countries, we find that market inefficiency is an important driver of return predictability. We also document significant cross-market predictability. Finally, domestic inflation-adjusted returns are significantly more predictable than USD returns.

Keywords: International equity premium, return predictability, market efficiency

JEL Classification: G10, G11, G15, G17

Suggested Citation

Hollstein, Fabian and Prokopczuk, Marcel and Tharann, Björn and Wese Simen, Chardin, Predicting the Equity Premium around the Globe: Comprehensive Evidence from a Large Sample (April 3, 2020). Available at SSRN: https://ssrn.com/abstract=3567622 or http://dx.doi.org/10.2139/ssrn.3567622

Fabian Hollstein (Contact Author)

Saarland University ( email )

Campus
Saarbrucken, Saarland D-66123
Germany

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Björn Tharann

Leibniz Universität Hannover ( email )

Welfengarten 1
D-30167 Hannover, 30167
Germany

Chardin Wese Simen

University of Liverpool Management School ( email )

Management School
University of Liverpool
Liverpool, L69 7ZH
United Kingdom

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