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

62 Pages Posted: 27 Apr 2020

See all articles by Fabian Hollstein

Fabian Hollstein

Leibniz University Hannover - School of Economics and Management

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

By studying 81 countries over a period of up to 144 years, with different classes of predictor variables and various forecast specifications, we conduct the most comprehensive equity premium predictability analysis to date. We find that excess returns are more predictable in Emerging and Frontier than in Developed Markets. For all groups, forecast combinations perform very well out-of-sample. Analyzing the cross-section of countries, we find that both market inefficiency and the variation in expected returns over time are important drivers of return predictability. Finally, domestic inflation-adjusted returns are substantially 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)

Leibniz University Hannover - School of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
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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