PREDICTIVE MODELING OF EQUITY RISK PREMIUM (ERP)

 

This informational blog was created in accordance with our practice of informing our interested parties of any changes to the “model”.  It is here that we demonstrate our motivations and evidence to support these enhancements.

Predictive modeling of Equity Risk Premium (ERP) is on-going and in some cases we may choose not to disclose those specific data sources that we consider proprietary.

Investment Strategists: Know Thy Forecasts

Posted by Rick Anderson on June 15, 2016
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Category: General

Investors who use quantitative forecasts to inform their trading have a two-part problem. First, they must come up with market forecasts on a regular basis. Second, they must devise a trading strategy based on the forecasts. We think this second … Read More

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How’m I Doin’?

Posted by Rick Anderson on June 15, 2016
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Category: General

That line was made famous by New York City Mayor Ed Koch in the 1980s. We are just as curious so we are firm believers in having an appropriate benchmark – a standard of performance – for our investment strategy. … Read More

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American Finance Association Meeting

Posted by Blair Hull on January 07, 2016
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Category: General

I just returned from the AFA 2016 Annual meeting in San Francisco.  I found two papers to be significant in regards to return predictability: Dash for Cash:  Month-end Liquidity Needs and the Predictability of Stock Returns, by Kalle Rinne, Matti … Read More

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Tis The Season

Posted by Rick Anderson on December 17, 2015
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Category: General

As we write this the S&P 500 with dividends is down 0.4% for the year and more than three percent in December. A down December is unusual based on historical returns going back to 1930. Indeed, they averaged 1.7% since … Read More

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Adding Short Term Models

Posted by Rick Anderson on November 04, 2015
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Category: General

According to Robert Clemens (1989) “Forecast accuracy can be substantially improved through the combination of multiple individual forecasts”.   Today we begin implementation of a short-term adjustment to our HTUS portfolio. The short-term adjustment comes from one-day models based on seasonal, … Read More

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Model Enhancement Update

Posted by admin on October 14, 2015
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Category: General

We are standardizing the variables (https://en.wikipedia.org/wiki/Standard_score) in the model to make the daily report more interpretable.  In the coming weeks we will also include new models comprised of additional variables not in the fundamental model. This ensemble approach will integrate … Read More

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Daily Report Commentary

Posted by Blair Hull on September 30, 2015
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Category: General

We refit the model as a part of a regularly scheduled model update procedure. New optimal indicator transformations in combination with updated variable selection caused the optimal allocation to decrease to -20%. We continue our research to determine the most … Read More

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