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Robust block bootstrap panel predictability tests

  • Westerlund J.
  • Smeekes S.

    (GSBE)

Most panel data studies of the predictability of returns presume that the cross-sectional units are independent, an assumption that is not realistic. As a response to this, the current paper develops block bootstrap-based panel predictability tests that are valid under very general conditions. Some of the allowable features include heterogeneous predictive slopes, persistent predictors, and complex error dynamics, including cross-unit endogeneity.

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File URL: http://pub.maastrichtuniversity.nl/3e67aa05-ecba-4d2c-a944-b790f47457be
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Paper provided by Maastricht University, Graduate School of Business and Economics (GSBE) in its series Research Memorandum with number 060.

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Date of creation: 2013
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Handle: RePEc:unm:umagsb:2013060
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  1. Park, Joon, 2003. "A Bootstrap Theory for Weakly Integrated Processes," Working Papers 2003-16, Rice University, Department of Economics.
  2. John Y. Campbell & Motohiro Yogo, 2003. "Efficient Tests of Stock Return Predictability," NBER Working Papers 10026, National Bureau of Economic Research, Inc.
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  5. Peter C.B. Phillips & Tassos Magdalinos, 2004. "Limit Theory for Moderate Deviations from a Unit Root," Cowles Foundation Discussion Papers 1471, Cowles Foundation for Research in Economics, Yale University.
  6. Smeekes Stephan, 2011. "Bootstrap Sequential Tests to Determine the Stationary Units in a Panel," Research Memorandum 003, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  7. Lewellen, Jonathan, 2004. "Predicting returns with financial ratios," Journal of Financial Economics, Elsevier, vol. 74(2), pages 209-235, November.
  8. Markku Lanne, 2002. "Testing The Predictability Of Stock Returns," The Review of Economics and Statistics, MIT Press, vol. 84(3), pages 407-415, August.
  9. L Giraitis & P C B Phillips, . "Uniform limit theory for stationary autoregression," Discussion Papers 05/23, Department of Economics, University of York.
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  12. Donald W.K. Andrews, 1988. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Cowles Foundation Discussion Papers 877R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1989.
  13. Chang, Yoosoon & Park, Joon Y. & Song, Kevin, 2006. "Bootstrapping cointegrating regressions," Journal of Econometrics, Elsevier, vol. 133(2), pages 703-739, August.
  14. Bai, Jushan & Ng, Serena, 2010. "Panel Unit Root Tests With Cross-Section Dependence: A Further Investigation," Econometric Theory, Cambridge University Press, vol. 26(04), pages 1088-1114, August.
  15. Park, Joon, 2003. "Weak Unit Roots," Working Papers 2003-17, Rice University, Department of Economics.
  16. Joakim Westerlund & Paresh K Narayan, 2012. "Does the choice of estimator matter when forecasting returns?," Financial Econometics Series 2012_01, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
  17. Efstathios Paparoditis & Dimitris N. Politis, 2003. "Residual-Based Block Bootstrap for Unit Root Testing," Econometrica, Econometric Society, vol. 71(3), pages 813-855, 05.
  18. Hjalmarsson, Erik, 2008. "The Stambaugh bias in panel predictive regressions," Finance Research Letters, Elsevier, vol. 5(1), pages 47-58, March.
  19. Hansen, Bruce E., 1992. "Convergence to Stochastic Integrals for Dependent Heterogeneous Processes," Econometric Theory, Cambridge University Press, vol. 8(04), pages 489-500, December.
  20. Palm Franz C. & Smeekes Stephan & Urbain Jean-Pierre, 2008. "Cross-Sectional Dependence Robust Block Bootstrap Panel Unit Root Tests," Research Memorandum 048, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  21. Gonçalves, Sílvia & Vogelsang, Timothy J., 2011. "Block Bootstrap Hac Robust Tests: The Sophistication Of The Naive Bootstrap," Econometric Theory, Cambridge University Press, vol. 27(04), pages 745-791, August.
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