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Department of Economics, Copenhagen Business School Working Paper Series, Department of Economics, Copenhagen Business School

No 05-2001:
ON THE PREDICTABILITY OF THE DANISH EQUITY PREMIUM

Jan Overgaard Olesen and Ole Risager

Abstract: This paper analyzes whether, and to what extent, the Danish 1, 5 and 10-year equity premia

are predictable. We examine the predictive power of a comprehensive list of financial ratios,

interest rates and so forth. The results show that the 5-year premium is predictable in the

sense that the model explains a non-trivial proportion of the variability of the equity

premium. Moreover, the model is good at predicting turning points in the premium. We also

analyze the portfolio implications of the model and find that the model is useful in predicting

the optimal return maximizing portfolio choice. Finally, the paper presents forecasts for the

5-year equity premium.

Keywords: equity premia; interest rates; portfolio choice; Denmark; (follow links to similar papers)

JEL-Codes: G11; (follow links to similar papers)

46 pages, March 1, 2000

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