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A Quantilogram Approach to Evaluating Directional Predictability

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Author Info
Oliver Linton
Yoon-Jae Whang

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Abstract

In this note we propose a simple method of measuring directional predictability and testing for the hypothesis that a given time series has no directional predictability. The test is based on the correlogram of quantile hits. We provide the distribution theory needed to conduct inference, propose some model free upper bound critical values, and apply our methods to stock index return data. The empirical results suggest some directional predictability in returns, especially in mid-range quantiles like 5%-10%.

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Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Econometrics Paper Series with number /2003/463.

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Date of creation: Nov 2003
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Handle: RePEc:cep:stiecm:/2003/463

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Keywords: Correlogram dependence efficient markets quantiles.

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  1. repec:cup:etheor:v:7:y:1991:i:2:p:186-99 is not listed on IDEAS
  2. repec:cup:etheor:v:12:y:1996:i:5:p:793-813 is not listed on IDEAS
  3. Tonks, Ian, 2002. "Performance Persistence of Pension Fund Managers," Royal Economic Society Annual Conference 2002 175, Royal Economic Society. [Downloadable!]
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  4. Peter Christoffersen & Francis X. Diebold, 2002. "Financial Asset Returns, Market Timing, and Volatility Dynamics," CIRANO Working Papers 2002s-02, CIRANO. [Downloadable!]
  5. Gilbert W. Bassett, 2004. "Pessimistic Portfolio Allocation and Choquet Expected Utility," Journal of Financial Econometrics, Oxford University Press, vol. 2(4), pages 477-492. [Downloadable!] (restricted)
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  6. Dufour, J.M. & Roy, R., 1985. "Generalized Portmanteau Statistics and Tests of Randomness," Cahiers de recherche 8540, Universite de Montreal, Departement de sciences economiques. [Downloadable!]
  7. Robert F. Engle & Simone Manganelli, 1999. "CAViaR: Conditional Autoregressive Value at Risk by Regression Quantiles," University of California at San Diego, Economics Working Paper Series 99-20, Department of Economics, UC San Diego. [Downloadable!]
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  1. Gilbert W. Bassett Jr & Roger Koenker & Gregory Kordas, 2004. "Pessimistic portfolio allocation and Choquet expected utility," CeMMAP working papers CWP09/04, Centre for Microdata Methods and Practice, Institute for Fiscal Studies. [Downloadable!]
    Other versions:
  2. Jaehun Chung & Yongmiao Hong, 2007. "Model-free evaluation of directional predictability in foreign exchange markets," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(5), pages 855-889. [Downloadable!]
  3. Stanislav Anatolyev & Nikolay Gospodinov, 2007. "Modeling Financial Return Dynamics by Decomposition," Working Papers w0095, Center for Economic and Financial Research (CEFIR). [Downloadable!]
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