Equity index returns predictability and fama-french factors
: a frequency domain analysis

  • Luís Carlos Silva Magalhães (Student)

Student thesis: Master's Thesis


We extend the analysis of Faria and Verona (2020) tothe Fama French 5 factor model to predict the Equity Risk Premium in theS&P500 index. The Fama French 5 factor model is decomposed using themaximal overlap discrete wavelet transform so that we canstudy the forecasting performance of each factor’s different frequencies andtest them out-of-sample. The main findings of this study are that the factorsthemselves are not good predictors of the equity risk premiumout-of-sample, but the 16-128 month frequencyof the HML (high minus low) and, especially the RMW (robust minus weak),are good predictors of the Equity Risk Premium especially in post-2008 crisis. Ourresults support recent findings in the asset pricing literature that the business-cyclefrequency components of financial variables play a crucial role in forecastingthe equity premium. Thus, for both investors and academics, these findingsare of great relevance.
Date of Award13 Jul 2022
Original languageEnglish
Awarding Institution
  • Universidade Católica Portuguesa
SupervisorGonçalo Faria (Supervisor) & Fabio Verona (Co-Supervisor)


  • Fama french factors
  • Index returns
  • Index returns forecasts
  • Equity risk premium
  • Frequency domain


  • Mestrado em Finanças

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