Cross-sectional forecasts of the equity premium

• 成果类型: Article
• 署名作者: Polk, Christopher; Thompson, Samuel; Vuolteenaho, Tuomo
• 署名单位: Northwestern University; Harvard University; National Bureau of Economic Research
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2005.03.013
• 发表日期: 2006
• 页码: 101-141
• 关键词: equity premium; CAPM; PREDICTING RETURNS; conditional inference; Neural Networks

摘要

If investors are myopic mean-variance optimizers, a stock's expected return is linearly related to its beta in the cross-section. The slope of the relation is the cross-sectional price of risk, which should equal the expected equity premium. We use this simple observation to forecast the equity-premium time series with the cross-sectional price of risk. We also introduce novel statistical methods for testing stock-return predictability based on endogenous variables whose shocks are potentially correlated with return shocks. Our empirical tests show that the cross-sectional price of risk (1) is strongly correlated with the market's yield measures and (2) predicts equity-premium realizations, especially in the first half of our 1927-2002 sample. (c) 2005 Published by Elsevier B.V.