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), pp. 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.

Item Type: Article
Digital Object Identifier (DOI): doi:10.1080/07350015.2011.652053
ISSNs: 0735-0015 (print)
Related URLs:
Organisations: Economics
ePrint ID: 300508
Date :
Date Event
April 2012Published
Date Deposited: 22 Feb 2012 12:24
Last Modified: 17 Apr 2017 17:31
Further Information:Google Scholar

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