A bootstrap test for predictability of asset returns

Jae Kim and Abul Shamsuddin ()

Finance Research Letters, 2020, vol. 35, issue C

Abstract: A bootstrap test is proposed for predictability of asset returns. The bootstrap is conducted with the likelihood ratio test in a restricted VAR form. The test shows no size distortion in small samples with desirable power properties. A wild bootstrap version, valid for financial returns showing unknown forms of conditional heteroskedasticty, is also proposed. As an application, predictive powers of dividend-price ratio and interest rate for U.S stock returns are evaluated.

Keywords: GLS estimation; Predictive regression; Power analysis; Restricted VAR; Wild bootstrapping (search for similar items in EconPapers)
JEL-codes: C32 G12 G14 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:35:y:2020:i:c:s1544612319305847

DOI: 10.1016/j.frl.2019.09.004

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