Inference for Noisy Long Run Component Process

Christian Gourieroux and Joann Jasiak

MPRA Paper from University Library of Munich, Germany

Abstract: This paper introduces a new approach to the modelling of a stationary long run component, which is an autoregressive process with near unit root and small sigma innovation. We show that a combination of a noise and a long run component can explain the long run predictability puzzle pointed out in Fama-French (1988). Moreover in the presence of a long run component, spurious regressions arise and misleading long run predictions are obtained when standard statistical approaches are applied

Keywords: Long Run; Predictability Puzzle; Weak Identification; Deconvolution; Term Structure; Near Unit Root; Small Sigma. (search for similar items in EconPapers)
JEL-codes: C1 E0 (search for similar items in EconPapers)
Date: 2010-01-01
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:98987

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