Equity Premium Prediction: Taking into Account the Role of Long, even Asymmetric, Swings in Stock Market Behavior
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arXiv
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| Format: | Preprint |
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2025
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| _version_ | 1866908537241731072 |
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| author | Un, Kuok Sin Ausloos, Marcel |
| author_facet | Un, Kuok Sin Ausloos, Marcel |
| contents | Through a novel approach, this paper shows that substantial change in stock market behavior has a statistically and economically significant impact on equity risk premium predictability both on in-sample and out-of-sample cases. In line with Auer's ''Bullish ratio'', a ''Bullish index'' is introduced to measure the changes in stock market behavior, which we describe through a ''fluctuation detrending moving average analysis'' (FDMAA) for returns. We consider 28 indicators. We find that a ''positive shock'' of the Bullish Index is closely related to strong equity risk premium predictability for forecasts based on macroeconomic variables for up to six months. In contrast, a ''negative shock'' is associated with strong equity risk premium predictability with adequate forecasts for up to nine months when based on technical indicators. |
| format | Preprint |
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arxiv_https___arxiv_org_abs_2509_10483 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Equity Premium Prediction: Taking into Account the Role of Long, even Asymmetric, Swings in Stock Market Behavior Un, Kuok Sin Ausloos, Marcel Statistical Finance Trading and Market Microstructure Through a novel approach, this paper shows that substantial change in stock market behavior has a statistically and economically significant impact on equity risk premium predictability both on in-sample and out-of-sample cases. In line with Auer's ''Bullish ratio'', a ''Bullish index'' is introduced to measure the changes in stock market behavior, which we describe through a ''fluctuation detrending moving average analysis'' (FDMAA) for returns. We consider 28 indicators. We find that a ''positive shock'' of the Bullish Index is closely related to strong equity risk premium predictability for forecasts based on macroeconomic variables for up to six months. In contrast, a ''negative shock'' is associated with strong equity risk premium predictability with adequate forecasts for up to nine months when based on technical indicators. |
| title | Equity Premium Prediction: Taking into Account the Role of Long, even Asymmetric, Swings in Stock Market Behavior |
| topic | Statistical Finance Trading and Market Microstructure |
| url | https://arxiv.org/abs/2509.10483 |