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A new test of asset return predictability with an unstable predictor
- Authors
- Chang, S.Y.
- Issue Date
- Nov-2020
- Publisher
- Elsevier B.V.
- Keywords
- Autoregressive process; Empirical likelihood; Level shift; Local-to-unity; Weighted estimation
- Citation
- Economics Letters, v.196
- Journal Title
- Economics Letters
- Volume
- 196
- ISSN
- 0165-1765
- Abstract
- This study constructs predictive regressions in which the predictable variable exhibits a level shift at some unknown date. We establish novel procedures to test asset return predictability via empirical likelihood (EL) methods based on weighted score equations. Monte Carlo simulations confirm that the EL-based tests perform well in terms of size and power in finite samples. © 2020 Elsevier B.V.
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Related Researcher
- CHANG, SEONGYEON
- College of Economics and International Commerce (Department of Economics)