Why Long Horizons? A Study of Power Against Persistent Alternatives

John Campbell

Scholarly Articles from Harvard University Department of Economics

Abstract: This paper studies tests of predictability in regressions with a given AR(1) regressor and an asset return dependent variable measured over a short or long horizon. The paper shows that when there is a persistent predictable component in the return, an increase in the horizon may increase the R2 statistic of the regression and the approximate slope of a predictability test. Monte Carlo experiments show that long-horizon regression tests have serious size distortions when asymptotic critical values are used, but some versions of such tests have power advantages remaining after size is corrected.

Date: 2001
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Published in Journal of Empirical Finance

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Related works:
Journal Article: Why long horizons? A study of power against persistent alternatives (2001)
Working Paper: Why Long Horizons: A Study of Power Against Persistent Alternatives (1993)
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Persistent link: https://EconPapers.repec.org/RePEc:hrv:faseco:3196341

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