Publication Type
Journal Article
Version
acceptedVersion
Publication Date
6-2015
Abstract
Financial theory and econometric methodology both struggle in formulating models that are logically sound in reconciling short-run martingale behavior for financial assets with predictable long-run behavior, leaving much of the research to be empirically driven. The present article overviews recent contributions to this subject, focusing on the main pitfalls in conducting predictive regression and on some of the possibilities offered by modern econometric methods. The latter options include indirect inference and techniques of endogenous instrumentation that use convenient temporal transforms of persistent regressors. Some additional suggestions are made for bias elimination, quantile crossing amelioration, and control of predictive model misspecification.
Keywords
bias, endogenous instrumentation, indirect inference, IVX estimation, local unit roots, mild integration, prediction, quantile crossing, unit roots, zero coverage probability
Discipline
Econometrics
Research Areas
Econometrics
Publication
Journal of Financial Econometrics
Volume
13
Issue
3
First Page
521
Last Page
555
ISSN
1479-8409
Identifier
10.1093/jjfinec/nbv014
Publisher
Oxford University Press
Citation
Peter C. B. PHILLIPS.
Halbert White Jr. Memorial JFEC Lecture: Pitfalls and Possibilities in Predictive Regression. (2015). Journal of Financial Econometrics. 13, (3), 521-555.
Available at: https://ink.library.smu.edu.sg/soe_research/1864
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1093/jjfinec/nbv014