Structural Breaks and Predictive Regression Models of Aggregate U.S. Stock Returns
In this article we examine the structural stability of predictive regression models of U.S. quarterly aggregate real stock returns over the postwar era. We consider predictive regressions models of S&P 500 and CRSP equal-weighted real stock returns based on eight financial variables that display predictive ability in the extant literature. We test for structural stability using the popular Andrews SupF statistic and the Bai subsample procedure in conjunction with the Hansen heteroskedastic fixed-regressor bootstrap. We also test for structural stability using the recently developed methodologies of Elliott and Müller, and Bai and Perron. We find strong evidence of structural breaks in five of eight bivariate predictive regression models of S&P 500 returns and some evidence of structural breaks in the three other models. There is less evidence of structural instability in bivariate predictive regression models of CRSP equal-weighted returns, with four of eight models displaying some evidence of structural breaks. We also obtain evidence of structural instability in a multivariate predictive regression model of S&P 500 returns. When we estimate the predictive regression models over the different regimes defined by structural breaks, we find that the predictive ability of financial variables can vary markedly over time. Copyright 2006, Oxford University Press.
Volume (Year): 4 (2006)
Issue (Month): 2 ()
|Contact details of provider:|| Postal: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK|
Fax: 01865 267 985
Web page: https://academic.oup.com/jfec
More information through EDIRC
|Order Information:||Web: http://www.oup.co.uk/journals|
When requesting a correction, please mention this item's handle: RePEc:oup:jfinec:v:4:y:2006:i:2:p:238-274. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.