Robust econometric inference for stock return predictability
Robust econometric inference for stock return predictability
This study examines stock return predictability via lagged financial variables with unknown stochastic properties. We propose a novel testing procedure that (1) robustifies inference to regressors' degree of persistence, (2) accommodates testing the joint predictive ability of financial variables in multiple regression, (3) is easy to implement as it is based on a linear estimation procedure, and (4) can be used for long-horizon predictability tests. We provide some evidence in favor of short-horizon predictability during the 1927-2012 period. Nevertheless, this evidence almost entirely disappears in the post–1952 period. Moreover, predictability becomes weaker, not stronger, as the predictive horizon increases.
1506-1553
Kostakis, Alexandros
db4d5bcf-e6cf-4e02-b880-354d5987f204
Magdalinos, Tassos
ded74727-1ed4-417d-842f-00ea86a3bc31
Stamatogiannis, Michalis
c193ba7f-6573-4a60-853c-38dbcc349a36
May 2015
Kostakis, Alexandros
db4d5bcf-e6cf-4e02-b880-354d5987f204
Magdalinos, Tassos
ded74727-1ed4-417d-842f-00ea86a3bc31
Stamatogiannis, Michalis
c193ba7f-6573-4a60-853c-38dbcc349a36
Kostakis, Alexandros, Magdalinos, Tassos and Stamatogiannis, Michalis
(2015)
Robust econometric inference for stock return predictability.
Review of Financial Studies, 28 (5), .
(doi:10.1093/rfs/hhu139).
Abstract
This study examines stock return predictability via lagged financial variables with unknown stochastic properties. We propose a novel testing procedure that (1) robustifies inference to regressors' degree of persistence, (2) accommodates testing the joint predictive ability of financial variables in multiple regression, (3) is easy to implement as it is based on a linear estimation procedure, and (4) can be used for long-horizon predictability tests. We provide some evidence in favor of short-horizon predictability during the 1927-2012 period. Nevertheless, this evidence almost entirely disappears in the post–1952 period. Moreover, predictability becomes weaker, not stronger, as the predictive horizon increases.
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e-pub ahead of print date: 17 December 2014
Published date: May 2015
Organisations:
Economics
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Local EPrints ID: 410067
URI: http://eprints.soton.ac.uk/id/eprint/410067
ISSN: 0893-9454
PURE UUID: bcf2641b-dd19-4f32-8abf-0c569d4b7fcb
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Date deposited: 03 Jun 2017 04:01
Last modified: 15 Mar 2024 14:22
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Author:
Alexandros Kostakis
Author:
Michalis Stamatogiannis
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