Uncovering regimes in out of sample forecast errors from predictive regressions

Jean-Yves Pitarakis
Authors registered in the RePEc Author Service: Jesus Gonzalo

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

Abstract: 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: Predictive; Regressions; Predictability; Out; Of; Sample; Forecast; Errors; Cusum; Thresholds (search for similar items in EconPapers)
JEL-codes: C12 C22 C53 C58 (search for similar items in EconPapers)
Date: 2020-12-09
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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