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On The Predictability Of The Danish Equity Premium

Author

Listed:
  • Olesen, Jan Overgaard

    (Department of Economics, Copenhagen Business School)

  • Risager, Ole

    (Department of Economics, Copenhagen Business School)

Abstract

This paper analyzes whether, and to what extent, the Danish 1, 5 and 10-year equity premia are predictable. We examine the predictive power of a comprehensive list of financial ratios, interest rates and so forth. The results show that the 5-year premium is predictable in the sense that the model explains a non-trivial proportion of the variability of the equity premium. Moreover, the model is good at predicting turning points in the premium. We also analyze the portfolio implications of the model and find that the model is useful in predicting the optimal return maximizing portfolio choice. Finally, the paper presents forecasts for the 5-year equity premium.

Suggested Citation

  • Olesen, Jan Overgaard & Risager, Ole, 2000. "On The Predictability Of The Danish Equity Premium," Working Papers 05-2001, Copenhagen Business School, Department of Economics.
    • Handle: RePEc:hhs:cbsnow:2001_005
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    References listed on IDEAS

    as
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    5. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    6. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    equity premia; interest rates; portfolio choice; Denmark;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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