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Nonparametric retrospection and monitoring of predictability of financial returns

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  • Stanislav Anatolyev

    ()
    (NES)

Abstract

We develop and evaluate sequential testing tools for a class of nonparametric tests for predictability of financial returns that includes, in particular, the directional accuracy and excess profitability tests. We consider both the retrospective context where a researcher wants to track predictability over time in a historical sample, and the monitoring context where a researcher conducts testing as new observations arrive. Throughout, we elaborate on both two-sided and one-sided testing, focusing on linear monitoring boundaries that are continuations of horizontal lines corresponding to retrospective critical values. We illustrate our methodology by testing for directional and mean predictability of returns in a dozen of young stock markets in Eastern Europe.

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Bibliographic Info

Paper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number w0071.

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Length: 28 pages
Date of creation: Aug 2006
Date of revision:
Handle: RePEc:cfr:cefirw:w0071

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Keywords: Testing; monitoring; predictability; stock returns;

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  1. Mateus, Tiago, 2004. "The risk and predictability of equity returns of the EU accession countries," Emerging Markets Review, Elsevier, Elsevier, vol. 5(2), pages 241-266, June.
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  17. Elena Andreou & Eric Ghysels, 2004. "Monitoring for Disruptions in Financial Markets," CIRANO Working Papers, CIRANO 2004s-26, CIRANO.
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Cited by:
  1. Kian-Ping Lim & Weiwei Luo & Jae H. Kim, 2013. "Are US stock index returns predictable? Evidence from automatic autocorrelation-based tests," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 45(8), pages 953-962, March.
  2. Kovačić, Zlatko, 2007. "Forecasting volatility: Evidence from the Macedonian stock exchange," MPRA Paper 5319, University Library of Munich, Germany.
  3. Alenka Kavkler & Mejra Festić, 2011. "Modelling Stock Exchange Index Returns in Different GDP Growth Regimes," Prague Economic Papers, University of Economics, Prague, University of Economics, Prague, vol. 2011(1), pages 3-22.

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