| Title | Out-of-sample equity premium prediction: The role of option-implied constraints |
| Author | |
| Corresponding Author | Ti,Zhou |
| Publication Years | 2023-01
|
| DOI | |
| Source Title | |
| ISSN | 0927-5398
|
| EISSN | 1879-1727
|
| Volume | 70Pages:199-226 |
| Abstract | We study a new constrained equity premium forecasting approach which employs the option -implied lower bounds for the conditional market premium from Martin (2017) and Chabi-Yo and Loudis (2020), respectively, as forecast constraints. This constrained approach delivers consid-erable out-of-sample gains in both statistical and economic criteria relative to the unconstrained predictive regression forecasts, and outperforms the prevailing non-negativity constraint at longer forecast horizons. We provide two explanations for the improvements: (1) option-implied bounds help to eliminate erratic return predictions and stabilize the unconstrained forecasts; (2) constrained forecasts integrate the information in conventional economic predictors and the forward-looking information about the expected returns implied by option prices. In addition, we find substantial differences in the forecasting performance of constrained forecasts. The information complementarity between the bounds and economic predictors helps to explain such heterogeneity. |
| Keywords | |
| URL | [Source Record] |
| Indexed By | |
| Language | English
|
| SUSTech Authorship | First
; Corresponding
|
| Funding Project | Philosophy and Social Science Planning Project of Guangdong Province, China[GD20XGL31]
; Stable Support Plan Program of Shenzhen Natural Science Fund[20200925160401001]
|
| WOS Research Area | Business & Economics
|
| WOS Subject | Business, Finance
; Economics
|
| WOS Accession No | WOS:000912407500001
|
| Publisher | |
| Data Source | 人工提交
|
| Citation statistics |
Cited Times [WOS]:0
|
| Document Type | Journal Article |
| Identifier | http://kc.sustech.edu.cn/handle/2SGJ60CL/416954 |
| Department | School of Business 商学院_金融系 |
| Affiliation | Department of Finance, School of Business, Southern University of Science and Technology |
| First Author Affilication | School of Business; Department of Finance |
| Corresponding Author Affilication | School of Business; Department of Finance |
| First Author's First Affilication | School of Business; Department of Finance |
| Recommended Citation GB/T 7714 |
Yunqi,Wang,Ti,Zhou. Out-of-sample equity premium prediction: The role of option-implied constraints[J]. Journal of Empirical Finance,2023,70:199-226.
|
| APA |
Yunqi,Wang,&Ti,Zhou.(2023).Out-of-sample equity premium prediction: The role of option-implied constraints.Journal of Empirical Finance,70,199-226.
|
| MLA |
Yunqi,Wang,et al."Out-of-sample equity premium prediction: The role of option-implied constraints".Journal of Empirical Finance 70(2023):199-226.
|
| Files in This Item: | ||||||
| File Name/Size | DocType | Version | Access | License | ||
| 1-s2.0-S092753982200（1251KB） | Restricted Access | -- | ||||
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