Forecasting Equity Premium: Global Historical Average Versus Local Historical Average and Constraints
股权风险溢价预测:全局历史平均、局部历史平均与约束
The equity premium, return on equity minus return on risk-free asset, is expected to be positive. We consider imposing such positivity constraint in local historical average (LHA) in nonparametric kernel regression framework. It is also extended to the semiparametric single index model when multiple predictors are used. We construct the constrained LHA estimator via an indicator function which operates as “model-selection” between the unconstrained LHA and the bound of the…