Recent empirical evidence suggests that stock market index returns are predictable from a variety of financial and macroeconomic variables. We extend this research by examining value and growth portfolios constructed by book-to-market ratio, and consider whether such predictability is evident here. Further, we assess whether such predictability is better characterised by a non-linear form and whether such non-linear predictability can be exploited to provide superior forecasts to those obtained from a linear model. General non-linearities are examined using non-parametric techniques, which suggest possible threshold behaviour. This leads to estimation of a smooth-transition threshold model, with the results indicating an improved in-sample performance and marginally superior out-of-sample forecast results. Copyright Blackwell Publishers Ltd, 2004.
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Volume (Year): 31 (2004-04) Issue (Month): 3-4 () Pages: 439-474 Download reference. The following formats are available: HTML
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