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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).

Record type: Article


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.

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Published date: April 2012
Organisations: Economics


Local EPrints ID: 300508
ISSN: 0735-0015
PURE UUID: 686139c2-cdc2-4f4d-98c4-d584bdd0c8e7

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Date deposited: 22 Feb 2012 12:24
Last modified: 18 Jul 2017 06:14

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Author: Jean-Yves Pitarakis
Author: Jesus Gonzalo

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