Equity premia predictability in the EuroZone

In this paper we study the equity premium predictability in eleven EuroZone countries. Besides some traditional predictive variables, we have also chosen two other that, to our knowledge, have never been previously used in the literature: the change in the OECD normalized composite leading indicator, and the change in the OECD business confidence indicator. The models based on the OECD variables outperform the historical average, in particular during the early stages of the recent financial crisis. We also show that the forecasts, based on these predictors, provide substantial utility gains for a mean-variance investor.