Uncovering regimes in out of sample forecast errors from predictive regressions
Jean-Yves Pitarakis (),
Jesus Gonzalo () and
Anibal Emiliano Da Silva Neto
UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía
We introduce a set of test statistics for assessing the presence of regimes in out of sample forecast errors produced by recursively estimated linear predictive regressions that can accommodate multiple highly persistent predictors. Our tests statistics are designed to be robust to the chosen starting window size and are shown to be both consistent and locally powerful. Their limiting none distributionsare also free of nuisance parameters and hence robust to the degree of persistence of the predictors.Our methods are subsequently applied to the predictability of the value premium whose dynamics are shown to be characterised by state dependence.
Keywords: Thresholds; Cusum; Out; Of; Sample; Forecast; Errors; Predictability; Predictive; Regressions (search for similar items in EconPapers)
JEL-codes: C58 C53 C22 C12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ore
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Journal Article: Uncovering Regimes in Out of Sample Forecast Errors from Predictive Regressions (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:cte:werepe:31555
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