Nearly Optimal Test for Long Run Predictability with Nearly Integrated Regressors

60 Pages Posted: 24 Mar 2018 Last revised: 18 Jun 2020

See all articles by Natalia Sizova

Natalia Sizova

Bing Ads Marketplace, Microsoft

Date Written: January 20, 2020

Abstract

We develop a method for long-run predictability testing in series Y by a persistent series X. We consider a class of tests based on the long-run behavior of these series that are robust to short-run dynamics and attempt to attain the highest possible power. The test is based on the Whittle approximation to the likelihood ratio that is adjusted to remain accurate across a range of persistence in X. We verify the properties of this test in small simulations and compare this test against a group of recently proposed methods.

Keywords: long-run predictability, frequency domain

JEL Classification: C12, C53, E37

Suggested Citation

Sizova, Natalia, Nearly Optimal Test for Long Run Predictability with Nearly Integrated Regressors (January 20, 2020). Available at SSRN: https://ssrn.com/abstract=3147057 or http://dx.doi.org/10.2139/ssrn.3147057

Natalia Sizova (Contact Author)

Bing Ads Marketplace, Microsoft ( email )

555 110th Ave NE
Microsoft City Center
Bellevue, WA 98004
United States

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