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A Class of Robust Tests in Augmented Predictive Regressions

Paulo Rodrigues () and Antonio Rubia

Working Papers from Banco de Portugal, Economics and Research Department

Abstract: This paper focuses on the analytical discussion of a robust t-test for predictability and on the analysis of its finite-sample properties. Our analysis shows that the procedure proposed exhibits approximately correct size even in fairly small samples. Furthermore, the test is well-behaved under short-run dependence, and can exhibit improved power performance over alternative procedures. These appealing properties, together with the fact that the test can be applied in a simple and direct way in the linear regression context, suggests that the modified t-statistic introduced in this paper is well suited for addressing predictability in empirical applications.

JEL-codes: C12 C22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm
Date: 2011
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