Incorporating economic policy uncertainty in US equity premium models : a nonlinear predictability analysis
Loading...
Date
Authors
Bekiros, Stelios
Gupta, Rangan
Majumdar, Anandamayee
Journal Title
Journal ISSN
Volume Title
Publisher
Elsevier
Abstract
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.
Description
Keywords
Stock markets, Economic uncertainty, Predictability, Quantile regression
Sustainable Development Goals
Citation
Bekiros, S, Gupta, R & Majumdar, A 2016, 'Incorporating economic policy uncertainty in US equity premium models : a nonlinear predictability analysis', Finance Research Letters, vol. 18, pp. 291-296.