Scandinavian Working Papers in Economics
Working Papers,
Copenhagen Business School, Department of Economics
No 05-2001: ON THE PREDICTABILITY OF THE DANISH EQUITY PREMIUM
Jan Overgaard Olesen and Ole Risager
Additional contact information
Jan Overgaard Olesen: Department of Economics, Copenhagen Business School, Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark
Ole Risager: Department of Economics, Copenhagen Business School, Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark
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
JEL-codes: G11
46 pages, March 1, 2000
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