Forecasting the Long-Term Equity Premium for Asset Allocation

Sakkas, Athanasios and Tessaromatis, Nikolaos, Forecasting the Long-Term Equity Premium for Asset Allocation (17 June 2022). Financial Analysts Journal, 2022, 78(3): 9-29. DOI: 10.1080/0015198X.2022.2073782

53 Pages Posted: 14 Jul 2021 Last revised: 2 Aug 2022

See all articles by Athanasios Sakkas

Athanasios Sakkas

Athens University of Economics and Business - Department of Accounting and Finance

Nikolaos Tessaromatis

EDHEC BUSINESS SCHOOL

Date Written: June 17, 2022

Abstract

Long-term country equity premium forecasts based on a cross-sectional global factor model (CS-GFM), where factors represent compensation for risks proxied by valuation and financial variables, are superior, statistically and economically, than forecasts based on time-series prediction models commonly used in academia and practice. CS-GFM equity premium forecasts produce significant utility gains compared to long-term asset allocation strategies based on eighteen commonly used prediction models, consistently across the US and eleven developed equity markets.

Keywords: Forecasting, Long-horizon predictability, Asset allocation, Global factor model

JEL Classification: G11, G15, G17

Suggested Citation

Sakkas, Athanasios and Tessaromatis, Nikolaos, Forecasting the Long-Term Equity Premium for Asset Allocation (June 17, 2022). Sakkas, Athanasios and Tessaromatis, Nikolaos, Forecasting the Long-Term Equity Premium for Asset Allocation (17 June 2022). Financial Analysts Journal, 2022, 78(3): 9-29. DOI: 10.1080/0015198X.2022.2073782, Available at SSRN: https://ssrn.com/abstract=3885085 or http://dx.doi.org/10.2139/ssrn.3885085

Athanasios Sakkas

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
GR-104 34 Athens
Greece

Nikolaos Tessaromatis (Contact Author)

EDHEC BUSINESS SCHOOL ( email )

10 fleet place
london, ec4m7rb
United Kingdom

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