A new test of asset return predictability with an unstable predictor

Seong Yeon Chang

Economics Letters, 2020, vol. 196, issue C

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.

Keywords: Autoregressive process; Empirical likelihood; Level shift; Local-to-unity; Weighted estimation (search for similar items in EconPapers)
JEL-codes: C12 C22 C32 G12 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:196:y:2020:i:c:s0165176520303219

DOI: 10.1016/j.econlet.2020.109529

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