Gupta, RanganHuber, FlorianPiribauer, Philipp2020-04-012020-03Gupta, R., Huber, F. & Piribauer, P. 2020, 'Predicting international equity returns: Evidence from time-varying parameter vector autoregressive models', International Review of Financial Analysis, vol. 68, art. 101456, pp. 1-13.1057-5219 (print)1873-8079 (online)10.1016/j.irfa.2020.101456http://hdl.handle.net/2263/73898In this paper, we forecast monthly stock returns of eight advanced economies using a time-varying parameter vector autoregressive model (TVP-VAR) with mixture innovations. Compared to standard TVP-VARs, our proposed model automatically detects whether time-variation in the parameters is needed through the introduction of a latent process. This framework is capable of dynamically detecting whether a given regression coefficient is constant or time-varying during distinct time periods. We moreover compare the performance of this model with a wide range of nested alternative time-varying and constant parameter VAR models. Our results indicate that our proposed framework outperforms its competitors in terms of point and density forecasts. A portfolio allocation exercise confirms the superiority of our proposed model. In addition, a copula-based analysis shows that it pays off to adopt a multivariate modeling framework during periods of stress, like the recent financial crisis.en© 2020 Elsevier Inc. All rights reserved. Notice : this is the author’s version of a work that was accepted for publication in International Review of Financial Analysis. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. A definitive version was subsequently published in International Review of Financial Analysis, vol. 68, art. 101456, pp. 1-13, 2020. doi : 10.1016/j.irfa.2020.101456.Time-varying parameter vector autoregressive (TVP-VAR)Portfolio allocationPoint and density forecastsTime-varying vector autoregressionInternational equity marketsPostprint Article