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arXiv · 2509.10483

Equity Premium Prediction: Taking into Account the Role of Long, even Asymmetric, Swings in Stock Market Behavior

Kuok Sin Un·Marcel Ausloos
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Abstract

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.

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BibTeXRIS

Kuok Sin Un, Marcel Ausloos. 2025-08-29. Equity Premium Prediction: Taking into Account the Role of Long, even Asymmetric, Swings in Stock Market Behavior. https://arxiv.org/abs/2509.10483

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