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621 – Portfolio Choice, Stock Returns, Bankrupcty, and Default
Estimating Country Indexes Returns Based on Earnings Forecasts
Ricardo Weiss
R Weiss Consultoria
Daiane Santos
Universidade Viera de Almeida
In this article, we present statistical models showing that expected earnings are an appropriate forecast measure for future returns. Since earnings estimates data for countries are available since 2003 and these are not available for companies, this article focuses on country indexes. The hypothesis is that future equity indexes prices for different countries are influenced by earnings estimates as well as by risk and currency levels. Models have been tested for six Countries selected among 47 Developed and Emerging countries covered by MSCI. For this purpose, SUTSE structure - Seemingly Unrelated Time Series Equations - introduced by Harvey in 1989 is adopted as well as Durbin and Koopman's structural model disclosed in 2001. In structural models, time series are interpreted as the sum of the components. These are estimated recursively through smoothing algorithms. Results will be shown including four error measures – MAPE, R2, Mean Squared Error and Forecast Standard Error - calculated for the models and its’ variables.