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Testing for predictability in conditionally heteroskedastic stock returns

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  • Westerlund, Joakim
  • Narayan, Paresh

Abstract

The difficulty of predicting stock returns has recently motivated researchers to start looking for more powerful tests, and the current study takes a step in this direction. Unlike existing tests, the test proposed here exploits the information contained in the heteroskedasticity of findings, which is expected to lead to higher power, a result that is confirmed by our results. In order to also maintain good size accuracy, subsample critical values are used.
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Suggested Citation

  • Westerlund, Joakim & Narayan, Paresh, 2014. "Testing for predictability in conditionally heteroskedastic stock returns," Working Papers fe_2014_01, Deakin University, Department of Economics.
    • Handle: RePEc:dkn:ecomet:fe_2014_01
    DOI: 10.1093/jjfinec/nbu001
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    File URL: http://www.dx.doi.org/10.1093/jjfinec/nbu001
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    Keywords

    Predictability; FQGLS; Conditional heteroskedasticity; Subsampling; Stock returns; General Financial Markets;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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