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Title: Cross-sectional variation of forward equity risk premium Authors:  Shuyuan Qi - Central University of Finance and Economics (China) [presenting]
Emese Lazar - University of Reading (United Kingdom)
Radu Tunaru - University of Sussex (United Kingdom)
Abstract: The forward equity risk premium (FERP) is constructed, which is a function of investors' risk aversion coefficient and the forward-looking return moments, for stocks listed in S\&P 100 from 2006 to 2020. The risk aversion coefficient of investors and forward-looking return moments are estimated based on the stochastic volatility model with price jumps. The initial portfolio analysis shows that the companies with higher/lower FERP also reveal higher/lower returns in the future. In addition, we also find that the aggregate FERP is significantly and positively linked to future stock market returns. We then investigate the power of the FERP in predicting real economic activity growth.