For forecasting and economic analysis many variables are used in logarithms (logs). In time series analysis this transformation is often considered to stabilize the variance of a series. We investigate under which conditions taking logs is beneficial for forecasting. Forecasts based on the...

We propose a new approach to imposing economic constraints on forecasts of the equity premium. Economic constraints are used to modify the posterior distribution of the parameters of the predictive return regression in a way that better allows the model to learn from the data. We consider two...

This paper examines the relationship between stock prices and commodity prices and whether this can be used to forecast stock returns. As both prices are linked to expected future economic performance they should exhibit a long-run relationship. Moreover, changes in sentiment towards commodity...

Both unconditional mixed-normal distributions and GARCH models with fat-tailed conditional distributions have been employed for modeling financial return data. We consider a mixed-normal distribution coupled with a GARCH-type structure which allows for conditional variance in each of the...

This study uses Markov-switching models to evaluate the informational content of the term structure as a predictor of recessions in eight OECD countries. The empirical results suggest that for all countries the term spread is sensibly modelled as a two-state regime-switching process. Moreover,...

Research examining the usefulness of non-linear models for stock market returns has almost reached an impasse. While there is general recognition of the superior ability of non-linear models to describe the data, there is less certainty about their ability to forecast the data. As such simple...