Regime specific predictability in 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: Predictive regressions are linear specifications linking a noisy variable such as stock returns to past values of a more persistent regressor with the aim of assessing the presence of predictability. Key complications that arise are the potential presence of endogeneity and the poor adequacy of asymptotic approximations. In this paper we develop tests for uncovering the presence of predictability in such models when the strength or direction of predictability may alternate across different economically meaningful episodes. An empirical application reconsiders the Dividend Yield based return predictability and documents a strong predictability that is countercyclical, occurring solely during bad economic times.

Keywords: Endogeneity; Persistence; Return; predictability; Threshold; models (search for similar items in EconPapers)
Date: 2010-12
New Economics Papers: this item is included in nep-ecm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Regime-Specific Predictability in Predictive Regressions (2011)
Working Paper: Regime Specific Predictability in Predictive Regressions (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:cte:werepe:we097844

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