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Equity premium predictability over the business cycle

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Bibliographic Details
Authors and Corporations: Mönch, Emanuel (Author), Stein, Tobias (Author)
Other Authors: Stein, Tobias [Author]
Type of Resource: E-Book
Language: English
published:
Frankfurt am Main Deutsche Bundesbank [2021]
Series: Deutsche Bundesbank: Discussion paper ; no 2021, 25
Subjects:
Source: Verbunddaten SWB
Lizenzfreie Online-Ressourcen
ISBN: 9783957298331
Description
Summary: The equity premium follows a pronounced v-shape pattern around the beginning of recessions. It sharply drops into negative territory just before business cycle peaks and then strongly recovers as the recession unfolds. Recessions are preceded by an inverted yield curve. Thus probit models using the term spread as predictor time the beginning of recessions well. We show that such model-implied recession probabilities strongly improve equity premium prediction out-of-sample. We document a structural break in the mean of the term spread in 1982. When correcting for this break, the forecast performance further strengthens, outperforming other recently proposed benchmark predictors.
Physical Description: 1 Online-Ressource (circa 75 Seiten); Illustrationen
ISBN: 9783957298331