TY - JOUR
T1 - Out-of-sample Predictability of the South African Equity Risk Premium Distribution
T2 - A Quantile Regression Approach
AU - Chawana, Munyaradzi
AU - Botha, Ilse
AU - Stander, Yolanda
N1 - Publisher Copyright:
© 2022, African Finance Association. All rights reserved.
PY - 2022
Y1 - 2022
N2 - This paper explores the out-of-sample predictability of the South African equity risk premium (ERP) distribution through a quantile regression framework. Empirical results show that beyond central quantiles, several predictor variables exhibit statistically and economically significant predictive ability, reinforcing evidence against the location shift hypothesis which proposes that predictor variables affect only the location of the ERP conditional distribution. Furthermore, combining out-of sample forecasts from various parts of the ERP distribution, a robust out-of-sample approximation of the mean ERP is attained under a 5-quantile post- least absolute shrinkage and selection operator specification with a time-invariant weighting scheme.
AB - This paper explores the out-of-sample predictability of the South African equity risk premium (ERP) distribution through a quantile regression framework. Empirical results show that beyond central quantiles, several predictor variables exhibit statistically and economically significant predictive ability, reinforcing evidence against the location shift hypothesis which proposes that predictor variables affect only the location of the ERP conditional distribution. Furthermore, combining out-of sample forecasts from various parts of the ERP distribution, a robust out-of-sample approximation of the mean ERP is attained under a 5-quantile post- least absolute shrinkage and selection operator specification with a time-invariant weighting scheme.
KW - Equity risk premium
KW - Forecast combination
KW - Out-of-sample predictability
KW - Quantile regression
UR - http://www.scopus.com/inward/record.url?scp=85188930481&partnerID=8YFLogxK
U2 - 10.520/ejc-finj_v24_n2_a4
DO - 10.520/ejc-finj_v24_n2_a4
M3 - Article
AN - SCOPUS:85188930481
SN - 1605-9786
VL - 24
SP - 51
EP - 65
JO - African Finance Journal
JF - African Finance Journal
IS - 2
ER -