Interpreting long-horizon estimates in predictive regressions

Erik Hjalmarsson

No 928, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper analyzes the asymptotic properties of long-horizon estimators under both the null hypothesis and an alternative of predictability. Asymptotically, under the null of no predictability, the long-run estimator is an increasing deterministic function of the short-run estimate and the forecasting horizon. Under the alternative of predictability, the conditional distribution of the long-run estimator, given the short-run estimate, is no longer degenerate and the expected pattern of coefficient estimates across horizons differs from that under the null. Importantly, however, under the alternative, highly endogenous regressors, such as the dividend-price ratio, tend to deviate much less than exogenous regressors, such as the short interest rate, from the pattern expected under the null, making it more difficult to distinguish between the null and the alternative.

Keywords: Regression analysis; Econometric models (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-for
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Citations: View citations in EconPapers (3)

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Journal Article: Interpreting long-horizon estimates in predictive regressions (2008)
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