Long-Horizon Regressions: Theoretical Results and Applications to the Expected Returns/Dividend Yields and Fisher Effect Relations1
نویسنده
چکیده
We analyze several ways of conducting long-horizon regressions, taken from the empirical literature. Asymptotic arguments are used to show that, in all cases, the t-statistics do not converge to well-de ned distributions, thus explaining the tendency of long-horizon regressions to nd signi cant results, where previous short-term approaches have failed. Moreover, in some cases, the ordinary least squares estimator is not consistent, and the R cannot be interpreted as a measure of the goodness of t. Those results cast doubt on the conclusions reached by most previous long-horizon regression studies. We propose a rescaled t-statistic, whose asymptotic distribution is easy to simulate, and re-visit some of the evidence on the long-horizon predictability of returns and the long-horizon tests of the Fisher E¤ect.
منابع مشابه
Characterizing the Ability of Dividend Yields to Predict Future Dividends in Log-Linear Present Value Models
High dividend yields imply that either future dividend growth must be low, or future discount rates must be high, or both. While previous studies have focused on the predictability of expected returns from dividend yields, dividend yields also strongly predict future dividends, and the predictability of dividend growth is much stronger than discount rates returns at a 1-year horizon. Inference ...
متن کاملThe Dog That Did Not Bark: A Defense of Return Predictability
If returns are not predictable, dividend growth must be predictable, to generate the observed variation in divided yields. I find that the absence of dividend growth predictability gives stronger evidence than does the presence of return predictability. Long-horizon return forecasts give the same strong evidence. These tests exploit the negative correlation of return forecasts with dividend-yie...
متن کاملStock Market Fluctuations and the Term Structure
This paper uses the term structure of interest rates to explain the variations of stock prices and stock returns. It shows that interest rates have an important impact on stock returns, especially at long horizons. The hypothesis that expected stock returns move one-for-one with ex ante interest rates, which has been rejected in other studies using short horizon nominal asset returns, is suppor...
متن کاملState-Space vs. VAR Models for Stock Returns
State-space or latent-variable models for stock prices specify a process for expected returns and expected and unexpected dividend growth, and then derive dividend yields and returns from a present value relations. They are a useful structure for understanding and interpreting forecasting relations. In this note, I connect state-space representations with their observable counterparts, and VAR/...
متن کاملA Frequency-Domain Alternative to Long-Horizon Regressions with Application to Return Predictability
This paper aims at improved accuracy in testing for long-run predictability in noisy series, such as stock market returns. Long-horizon regressions have previously been the dominant approach in this area. We suggest an alternative method that yields more accurate results. We find evidence of predictability in S&P 500 returns even when the confidence intervals are constructed using model-free me...
متن کامل