Out‐of‐Sample Return Predictability: A Quantile Combination Approach |
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| Authors: | Luiz Renato Lima Fanning Meng |
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| Affiliation: | 1. Department of Economics, University of Tennessee at Knoxville, TN, USA;2. Federal University of Paraiba, Brazil |
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| Abstract: | This paper develops a novel forecasting method that minimizes the effects of weak predictors and estimation errors on the accuracy of equity premium forecasts. The proposed method is based on an averaging scheme applied to quantiles conditional on predictors selected by LASSO. The resulting forecasts outperform the historical average, and other existing models, by statistically and economically meaningful margins. Copyright © 2016 John Wiley & Sons, Ltd. |
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