Hermite Series Estimation in Nonlinear Cointegrating Models

Biqing Cai () and Jiti Gao

No 17/13, Monash Econometrics and Business Statistics Working Papers from Monash University, Department of Econometrics and Business Statistics

Abstract: This paper discusses nonparametric series estimation of integrable cointegration models using Hermite functions. We establish the uniform consistency and asymptotic normality of the series estimator. The Monte Carlo simulation results show that the performance of the estimator is numerically satisfactory. We then apply the estimator to estimate the stock return predictive function. The out-of-sample evaluation results suggest that dividend yield has nonlinear predictive power for stock returns while book-to-market ratio and earning-price ratio have little predictive power.

Keywords: Cointegration; Hermite Functions; Return Predictability; Series Estimator; Unit Root (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-for
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Citations: View citations in EconPapers (3)

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