Nonparametric retrospection and monitoring of predictability of financial returns

Stanislav Anatolyev ()

No w0071, Working Papers from Center for Economic and Financial Research (CEFIR)

Abstract: We develop and evaluate sequential testing tools for a class of nonparametric tests for predictability of financial returns that includes, in particular, the directional accuracy and excess profitability tests. We consider both the retrospective context where a researcher wants to track predictability over time in a historical sample, and the monitoring context where a researcher conducts testing as new observations arrive. Throughout, we elaborate on both two-sided and one-sided testing, focusing on linear monitoring boundaries that are continuations of horizontal lines corresponding to retrospective critical values. We illustrate our methodology by testing for directional and mean predictability of returns in a dozen of young stock markets in Eastern Europe.

Keywords: Testing; monitoring; predictability; stock returns (search for similar items in EconPapers)
JEL-codes: C12 C22 C52 C53 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-ecm, nep-ets and nep-rmg
Date: 2006-08
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Related works:
Journal Article: Nonparametric Retrospection and Monitoring of Predictability of Financial Returns (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:cfr:cefirw:w0071

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