Small-sample tests for stock return predictability with possibly non-stationary regressors and GARCH-type effects: FB3-5/2017-10E-PDF

“We develop a simulation-based procedure to test for stock return predictability with multiple regressors. The process governing the regressors is left completely free and the test procedure remains valid in small samples even in the presence of non-normalities and GARCH-type effects in the stock returns. The usefulness of the new procedure is demonstrated both in a simulation study and by examining the ability of a group of financial variables to predict excess stock returns. We find robust evidence of predictability during the period 1948–2014, driven entirely by the term spread. This empirical evidence, however, is much weaker over subsamples"--Abstract, p. ii.

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Department/Agency Bank of Canada.
Title Small-sample tests for stock return predictability with possibly non-stationary regressors and GARCH-type effects
Series Title Bank of Canada staff working paper,
Publication Type Series - View Master Record
Language [English]
Format Electronic
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Note "March 2017."
Date 2017.
Number of Pages ii, 62 p. :
Catalogue Number
  • FB3-5/2017-10E-PDF
Subject Terms Markets, Economic analysis, Statistical analysis