Regime specific predictability in predictive regressions
Pitarakis, Jean-Yves and Gonzalo, Jesus (2012) Regime specific predictability in predictive regressions. Journal of Business and Economic Statistics, 30, (2), 229-241. (doi:10.1080/07350015.2011.652053).
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Predictive regressions are linear specifications linking a noisy variable such as stock returns to past values of a very persistent regressor with the aim of assessing the presence of predictability. Key complications that arise are the potential presence of endogeneity and the poor adequacy of asymptotic approximations. In this paper we develop tests for uncovering the presence of predictability in such models when the strength or direction of predictability may alternate across different economically meaningful episodes. An empirical application reconsiders the Dividend Yield based return predictability and documents a strong predictability that is countercyclical, occurring solely during bad economic times.
|Digital Object Identifier (DOI):||doi:10.1080/07350015.2011.652053|
|Subjects:||H Social Sciences > HA Statistics|
|Divisions:||Faculty of Social and Human Sciences > Social Sciences > Economics
|Date Deposited:||22 Feb 2012 12:24|
|Last Modified:||31 Mar 2016 14:23|
EPISODIC PREDICTABILITY IN MODELS WITH PERSISTENT VARIABLES AND ENDOGENEITY: DETECTION AND ESTIMATION
Funded by: ESRC (RES-000-22-3983)
Led by: Jean-Yves Pitarakis
1 November 2010 to 30 April 2012
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