Incorporating economic policy uncertainty in US equity premium models : a nonlinear predictability analysis
Finance research letters, 2016, Vol. 18, pp. 291-296
BEKIROS, Stelios D., GUPTA, Rangan, MAJUMDAR, Anandamayee, Incorporating economic policy uncertainty in US equity premium models : a nonlinear predictability analysis, Finance research letters, 2016, Vol. 18, pp. 291-296 - https://hdl.handle.net/1814/44655
Retrieved from Cadmus, EUI Research Repository
Information on economic policy uncertainty does matter in predicting the US equity premium, especially when accounting for structural instabilities and omitted nonlinearities in their relationship, via a quantile predictive regression approach over the monthly period 1900:1-2014:2. Unlike as suggested by a linear mean-based predictive model, the extended quantile regression model with the incorporation of the EPU proxy, enhances significantly the out-of-sample stock return predictability. This is observed especially when the market is neutral, exhibits a slide or mildly upward trending behavior, yet not when the market appears to turn highly bullish.
Cadmus permanent link: https://hdl.handle.net/1814/44655
Full-text via DOI: 10.1016/j.frl.2016.01.012
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