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Media type:
E-Article
Title:
Regime-Specific Predictability in Predictive Regressions
Contributor:
Gonzalo, Jesús;
Pitarakis, Jean-Yves
Published:
American Statistical Association, 2012
Published in:
Journal of Business & Economic Statistics, 30 (2012) 2, Seite 229-241
Language:
English
DOI:
10.1080/07350015.2011.652053
ISSN:
0735-0015
Origination:
Footnote:
Description:
Predictive regressions are linear specifications linking a noisy variable such as stock returns to past values of a very 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 article, 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. This article has online supplementary materials.