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Equity premium prediction: The role of information from the options market

Alexandridis, Antonios, Apergis, Iraklis, Panopoulou, Ekaterini, Voukelatos, Nikolaos (2022) Equity premium prediction: The role of information from the options market. Journal of Financial Markets, 64 . Article Number 100801. ISSN 1386-4181. (doi:10.1016/j.finmar.2022.100801) (KAR id:99299)


This paper examines the role of information from the options market in forecasting the equity premium. We provide empirical evidence that the equity premium is predictable out-of-sample using a set of CBOE strategy benchmark indices as predictors. We use a range of econometric approaches to generate point, quantile and density forecasts of the equity premium, and we find that models based on option variables consistently outperform the historical average benchmark. In addition to statistical gains, using option predictors results in substantial economic benefits for a mean-variance investor, delivering up to a fivefold increase in certainty equivalent returns over the benchmark during the 1996-2021 sample period.

Item Type: Article
DOI/Identification number: 10.1016/j.finmar.2022.100801
Uncontrolled keywords: Equity premium; Forecasting; Options; Quantile regression
Subjects: H Social Sciences > HG Finance
Divisions: Divisions > Kent Business School - Division > Department of Accounting and Finance
Funders: University of Kent (
Depositing User: Nikolaos Voukelatos
Date Deposited: 23 Dec 2022 07:26 UTC
Last Modified: 27 Oct 2023 13:16 UTC
Resource URI: (The current URI for this page, for reference purposes)

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