Prior empirical studies suggest that technical indicators may contain information useful for predicting the equity market risk premium and may complement forecasting models based on macroeconomic variables. This paper examines the predictive power of technical indicators in conjunction with macroeconomic variables in the Korean market, focusing on whether technical indicators enhance the predictability of the equity market risk premium. Using monthly data from October 2000 to December 2023, this study evaluates the performance of individual variables and groups of macroeconomic variables and/or technical indicators by extracting principal components and estimating predictive regressions. Both in-sample and out-of-sample tests are conducted to assess the economic implications of the principal component predictive regressions. Contrary to findings from the U.S. and China, the results show that technical indicators in Korea exhibit weak predictive power at a monthly frequency when considered in isolation. However, combining technical indicators with macroeconomic variables substantially improves predictability. In-sample regressions based on principal components extracted from the combined information set yield higher explanatory power than models based solely on macroeconomic variables or technical indicators. Out-of-sample results further confirm that incorporating technical indicators into macroeconomic information leads to meaningful gains in forecasting accuracy for the Korean equity market risk premium.
Lee et al. (2026) studied this question.