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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
    as

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    References listed on IDEAS

    as
    1. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
    2. repec:bla:jfinan:v:53:y:1998:i:5:p:1563-1587 is not listed on IDEAS
    3. Ole Risager, "undated". "Random Walk or Mean Reversion:," EPRU Working Paper Series 98-12, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    4. Olivier J. Blanchard, 1993. "Movements in the Equity Premium," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(2), pages 75-138.
    5. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
    6. John Y. Campbell & Robert J. Shiller, 2001. "Valuation Ratios and the Long-Run Stock Market Outlook: An Update," NBER Working Papers 8221, National Bureau of Economic Research, Inc.
    7. Risager, Ole, 1998. "Random walk or mean reversion," Working Papers 07-1998, Copenhagen Business School, Department of Economics.
    8. 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.
    9. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, April.
    10. Narayana R. Kocherlakota, 1996. "The Equity Premium: It's Still a Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 42-71, March.
    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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