Multi-step non- and semi-parametric predictive regressions for short and long horizon stock return prediction

Tingting Cheng (), Jiti Gao and Oliver Linton

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

Abstract: In this paper, we propose three new predictive models: the multi-step nonparametric predictive regression model and the multi-step additive predictive regression model, in which the predictive variables are locally stationary time series; and the multi-step time-varying coefficient predictive regression model, in which the predictive variables are stochastically nonstationary. We also establish the estimation theory and asymptotic properties for these models in the short horizon and long horizon case. To evaluate the effectiveness of these models, we investigate their capability of stock return prediction. The empirical results show that all of these models can substantially outperform the traditional linear predictive regression model in terms of both in-sample and out-of-sample performance. In addition, we find that these models can always beat the historical mean model in terms of in-sample fitting, and also for some cases in terms of the out-of-sample forecasting.

Keywords: Kernel estimator; locally stationary process; series estimator; stock return prediction. (search for similar items in EconPapers)
JEL-codes: C14 C22 G17 (search for similar items in EconPapers)
Pages: 39
Date: 2017
New Economics Papers: this item is included in nep-ecm, nep-for and nep-ore
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Working Paper: Multi-step non- and semi-parametric predictive regressions for short and long horizon stock return prediction (2018)
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