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Does the choice of estimator matter when forecasting returns?

Westerlund, Joakim and Narayan, Paresh Kumar 2012, Does the choice of estimator matter when forecasting returns?, Journal of banking and finance, vol. 36, no. 9, pp. 2632-2640, doi: 10.1016/j.jbankfin.2012.06.005.

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Title Does the choice of estimator matter when forecasting returns?
Author(s) Westerlund, Joakim
Narayan, Paresh Kumar
Journal name Journal of banking and finance
Volume number 36
Issue number 9
Start page 2632
End page 2640
Total pages 9
Publisher Elsevier BV
Place of publication Amsterdam, The Netherlands
Publication date 2012-09
ISSN 0378-4266
1872-6372
Keyword(s) predictive regression
stock return predictability
heteroskedasticity
predictor endogeneity
Summary While the literature concerned with the predictability of stock returns is huge, surprisingly little is known when it comes to role of the choice of estimator of the predictive regression. Ideally, the choice of estimator should be rooted in the salient features of the data. In case of predictive regressions of returns there are at least three such features; (i) returns are heteroskedastic, (ii) predictors are persistent, and (iii) regression errors are correlated with predictor innovations. In this paper we examine if the accounting of these features in the estimation process has any bearing on our ability to forecast future returns. The results suggest that it does.
Language eng
DOI 10.1016/j.jbankfin.2012.06.005
Field of Research 150202 Financial Econometrics
Socio Economic Objective 910104 Exchange Rates
HERDC Research category C1 Refereed article in a scholarly journal
Copyright notice ©2012, Elsevier B.V.
Persistent URL http://hdl.handle.net/10536/DRO/DU:30046277

Document type: Journal Article
Collections: Faculty of Business and Law
School of Accounting, Economics and Finance
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Created: Thu, 26 Jul 2012, 17:14:13 EST by Aysun Alpyurek

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