A new test of asset return predictability with an unstable predictor

초록

This study constructs predictive regressions in which the predictable variable exhibits a level shift at some unknown date. We establish novel procedures to test asset return predictability via empirical likelihood (EL) methods based on weighted score equations. Monte Carlo simulations confirm that the EL-based tests perform well in terms of size and power in finite samples. © 2020 Elsevier B.V.

키워드