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Robust block bootstrap panel predictability tests

journal contribution
posted on 2019-01-01, 00:00 authored by S Smeekes, Joakim WesterlundJoakim Westerlund
This article develops two block bootstrap-based panel predictability test procedures that are valid under very general conditions. Some of the allowable features include cross-sectional dependence, heterogeneous predictive slopes, persistent predictors, and complex error dynamics, including cross-unit endogeneity. While the first test procedure tests if there is any predictability at all, the second procedure determines the units for which predictability holds in case of a rejection by the first. A weak unit root framework is adopted to allow persistent predictors, and a novel theory is developed to establish asymptotic validity of the proposed bootstrap. Simulations are used to evaluate the performance of our tests in small samples, and their implementation is illustrated through an empirical application to stock returns.

History

Journal

Econometric reviews

Volume

38

Pagination

1089-1107

Location

Abingdon, Eng.

Open access

  • Yes

ISSN

0747-4938

eISSN

1532-4168

Language

Eng

Publication classification

C Journal article, C1 Refereed article in a scholarly journal

Copyright notice

2018, Stephan Smeekes and Joakim Westerlund.

Issue

9

Publisher

Taylor and Francis