Physical Sciences and Mathematics Commons^™

Forecasting The Equity Premium In The Australian Market, David E. Allen, Lurion Demello

Research outputs pre 2011

This paper provides a forecasting methodology for estimating the market risk premium in Australia. We employ an in-sample and out-of-sample forecast estimate using various dividend yield measures. The lagged dividend yield model is used to predict future equity premia on a data series that includes the top 85 percent of the Australian stock market. An important concern in this paper is the accuracy of dividend yield in forecasting the equity premium in the Australian market. We find that the level of predictability in the later part of the series is very weak compared to in-sample prediction during the 70s and …