We show that the out-of-sample forecast of the equity risk premium can be significantly improved by taking into account the frequency-domain relationship between the equity risk premium and several potential predictors. We consider fifteen predictors from the existing literature, for the...

In this paper we consider the question of how to improve the efficacy of strategies designed to capture factor premiums in equity markets and, in particular, from the value, quality, low risk and momentum factors. We consider a number of portfolio construction approaches designed to capture...

We generalize the Ferreira and Santa-Clara (2011) sum-of-the-parts method for forecasting stock market returns. Rather than summing the parts of stock returns, we suggest summing some of the frequency-decomposed parts. The proposed method signi cantly improves upon the original sum-of-the-parts...

We show that uncertainty of monetary policy (MPU) commands a risk premium in the US Treasury bond market. Using the news based MPU measure in Baker, Bloom, and Davis (2016) to capture monetary policy uncertainty, we find that MPU forecasts significantly and positively future monthly Treasury...

We introduce a novel dynamic Bayesian model combination approach for predicting aggregate stock returns. Our method involves combining predictive densities in a data-adaptive fashion and simultaneously features (i) uncertainty about relevant predictor variables, (ii) parameter instability, (iii)...

A large set of macroeconomic variables have been suggested as equity risk premium predictors in the literature. This paper proposes a forecasting approach for the equity risk premium with two novel features. First, individual month-ahead forecasts are obtained from parsimonious threshold...

I analyze the risk of nominal assets within an external habit model supplemented with realistic non-Gaussian macroeconomic dynamics. The estimation identifies time-varying "demand-like" and "supply-like" macroeconomic shocks directly linked to the risk of nominal assets. After matching standard...

This paper introduces a new out-of-sample forecasting methodology for monthly market returns using the variance risk premium (VRP) that is both statistically and economically significant. This methodology is motivated by the `beta representation,' which implies that the market risk premium is...

Long-term country equity premium forecasts based on a cross-sectional global factor model (CS-GFM), where factors represent compensation for risks proxied by valuation and financial variables, are superior, statistically and economically, from forecasts based on time-series prediction models...

Predictability is time and frequency dependent. We propose a new forecasting method - forecast combination in the frequency domain - that takes this fact into account. With this method we forecast the equity premium and real GDP growth rate. Combining forecasts in the frequency domain produces...