Extensions to IVX methods of inference for return predictability

Matei Demetrescu, Iliyan Georgiev, Paulo Rodrigues and Robert Taylor

Journal of Econometrics, 2023, vol. 237, issue 2

Abstract: The contribution of this paper is threefold. First, we demonstrate that, provided either a suitable bootstrap implementation is employed or heteroskedasticity-consistent standard errors are used, the IVX-based predictability tests of Kostakis et al. (2015) retain asymptotically valid inference under the null hypothesis under considerably weaker assumptions on the innovations than are required by Kostakis et al. (2015). Second, under the same assumptions, we develop asymptotically valid bootstrap implementations of the IVX tests. Monte Carlo simulations show that the bootstrap tests deliver considerably more accurate finite sample inference than the asymptotic implementations of the tests under certain problematic parameter constellations, most notably for one-sided testing, and where multiple predictors are included. Third, we show how sub-sample implementations of the IVX approach can be used to develop asymptotically valid one-sided and two-sided tests for the presence of temporary windows of predictability.

Keywords: Predictive regression; IVX estimation; (Un)conditional heteroskedasticity; Subsample tests; Unknown regressor persistence; Endogeneity; Residual wild bootstrap (search for similar items in EconPapers)
JEL-codes: C12 C22 G17 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304407622000586
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Extensions to IVX Methods of Inference for Return Predictability (2022)
Working Paper: Extensions to IVX methods of inference for return predictability (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:237:y:2023:i:2:s0304407622000586

DOI: 10.1016/j.jeconom.2022.02.007

Access Statistics for this article

Journal of Econometrics is currently edited by T. Amemiya, A. R. Gallant, J. F. Geweke, C. Hsiao and P. M. Robinson

More articles in Journal of Econometrics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().