Testing for predictability in conditionally heteroskedastic stock returns

Journal of Financial Econometrics

Volumn 13, Issue 2, 2015, Pages 342-375

  Westerlund, Joakim ^a   Narayan, Paresh ^a  

^a DEAKIN UNIVERSITY   (Australia)

Author keywords

Conditional heteroskedasticity; FQGLS; Predictability; Stock returns; Subsampling

Indexed keywords

EID: 84925269252     PISSN: 14798409     EISSN: 14798417     Source Type: Journal    
DOI: 10.1093/jjfinec/nbu001     Document Type: Article

References (36)

1. Andrews, D. W. K., and P. Guggenberger. 2009a. Hybrid and Size-Corrected Subsampling Methods. Econometrica 77: 721-762.
2. Andrews, D.W. K., and P. Guggenberger. 2009b. Supplement to "Hybrid and Size-Corrected Subsampling Methods". (Econometrica 77, 721-762). Available on the Econometric Society website.
3. Andrews, D. W. K., and P. Guggenberger. 2012. Asymptotics for LS, GLS, and Feasible GLS Statistics in an AR(1) Model with Conditional Heteroskedasticity. Journal of Econometrics 169: 196-210.
4. Bollerslev, T. 1990. Modeling Coherence in Short-Run Nominal Exchange Rates: A Multivariate Generalized ARCH Approach. Review of Economics and Statistics 72: 498-505.
5. Brenner, R. J., R. H. Harjes, and K. F. Kroner. 1996. Another Look at Models of the Short-Term Interest Rate. Journal of Financial and Quantitative Analysis 31: 85-107.
6. Cavanagh, C., G. Elliott, and J. Stock. 1995. Inference in Models with Nearly Integrated Regressors. Econometric Theory 11: 1131-1147.
7. Campbell, J. Y., and R. J. Shiller. 1988. The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors. Review of Financial Studies 1: 195-228.
8. Campbell, J. Y., and S. B. Thompson. 2008. Predicting Excess Stock Returns Out of Sample: Can Anything Beat the Historical Average. Review of Financial Studies 21: 1509-1531.
9. Campbell, J. Y., and M. Yogo. 2006. Efficient Tests of Stock Return Predictability. Journal of Financial Economics 81: 27-60.
10. Cochrane, J. H. 1991. Production-Based Asset Pricing and the Link between Stock Returns and Economic Fluctuations. Journal of Finance 46: 209-237.
11. Diesprong, G., B. Jacobsen, and B. Maat. 2008. Striking Oil: Another Puzzle? Journal of Financial Economics 89: 307-327.
12. Elliott, G., and J. H. Stock. 1994. Inference in Time Series Regression When the Order of Integration of a Regressor is Unknown. Econometric Theory 10: 672-700.
13. Ferson, W., S. Sarkissian, and T. Simin. 2003. Spurious Regression in Financial Economics? Journal of Finance 58: 1393-1413.
14. Francq, C., and J.-M. Zakoïan. 2008. Estimating ARCH Models when the Coefficients are Allowed to be Equal to Zero. Austrian Journal of Statistics 37: 31-40.
15. Glosten, L. R., R. Jagannathan, and D. Runkle. 1993. On the Relation Between the Expected Value and the Volatility of the Nominal Excess Return on Stocks. Journal of Finance 48: 1779-1801.
16. Hansen, B. E. 1995a. Rethinking the Univariate Approach to Unit Root Testing: Using Covariates to Increase Power. Econometric Theory 11:1148-1171.
17. Hansen, B. E. 1995b. Regression with Nonstationary Volatility. Econometrica 63: 1113-1132.
18. Hjalmarsson, E. (2010). Predicting Global Stock Returns. Journal of Financial and Quantitative Analysis 45: 49-80.
19. Kothari, S. P., and J. Shanken. 1997. Book-to-Market, Dividend Yield, and Expected Market Returns: A Time Series Analysis. Journal of Financial Economics 44: 169-203.
20. Lanne, M. 2002. Testing the Predictability of Stock Returns. The Review of Economics and Statistics 84: 407-415.
21. Lewellen, J. 2004. Predicting Returns with Financial Ratios. Journal of Financial Economics 74: 209-235.
22. McMurry, T., D. N. Politis, and J. P. Romano. 2012. Subsampling Inference with K Populations and a Nonstandard Behrens-Fisher Problem. International Statistical Review 80: 149-175.
23. Narayan, P. K., and S. Sharma. 2011. New Evidence on Oil Price and Firm Returns. Journal of Banking and Finance 35: 3253-3262.
24. Ng, S., and P. Perron. 1995. Unit Root Test in ARMA Models with Data-Dependent Methods for the Selection of the Truncation Lag. Journal of the American Statistical Association 90: 268-281.
25. Pontiff, J., and L. D. Schall (1998). Book-to-Market Ratios as Predictors of Market Returns. Journal of Financial Economics 49: 141-160.
26. Rapach, D. E., J. K. Strauss, and G. Zhou. 2010. Out-of-sample Equity Premium Prediction: Combination Forecasts and Links to the Real Economy. Review of Financial Studies 23: 821-862.
27. Rapach, D. E., J. K. Strauss, and J. Rangvid. 2005. Macro Variables and International Stock Return Predictability. International Journal of Forecasting 21: 137-166.
28. Romano, J. P., and M. Wolf. 2001. Subsampling Intervals in Autoregressive Models with Linear Time Trend. Econometrica 69: 1283-1314.
29. Said, E. D., and D. A. Dickey. 1984. Testing for Unit Roots in Autoregressive Moving Average Models of Unknown Order. Biometrika 71: 599-607.
30. Seo, B. 1999. Distribution Theory for Unit Root Tests with Conditional Heteroskedasticity. Journal of Econometrics 91: 113-144.
31. Smeekes, S., and R. A. M. Taylor. 2012. Bootstrap Union Tests For Unit Roots In The Presence Of Nonstationary Volatility. Econometric Theory 28: 422-456.
32. Stambaugh, R. F. 1999. Predictive Regressions. Journal of Financial Economics 54: 375-421.
33. Torous, W., R. Valkanov, and S. Yan. 2004. On Predicting Stock Returns with Nearly Integrated Explanatory Variables. Journal of Business 77: 937-966.
34. Valkanov, R. 2003. Long-horizon Regressions: Theoretical Results and Applications. Journal of Financial Economics 68: 201-232.
35. Welch, I., and A. Goyal. 2008. A Comprehensive Look at the Empirical Performance of Equity Premium Prediction. Review of Financial Studies 21: 1455-1508.
36. Westerlund, J., and P. Narayan. 2012. Does the Choice of Estimator Matter when Forecasting Returns? Journal of Banking and Finance 36: 2632-2640.