Xiaosai Liao, Xinjue Li, Qingliang Fan
arXiv 2 Jan 2024 · Statistics — Methodology
arXiv:2401.01064 · PDF · DOI · OpenAlex · Extracted main text
We propose a robust hypothesis testing procedure for the predictability of multiple predictors that could be highly persistent. Our method improves the popular extended instrumental variable (IVX) testing (Phillips and Lee, 2013; Kostakis et al., 2015) in that, besides addressing the two bias effects found in Hosseinkouchack and Demetrescu (2021), we find and deal with the variance-enlargement effect. We show that two types of higher-order terms induce these distortion effects in the test statistic, leading to significant over-rejection for one-sided tests and tests in multiple predictive regressions. Our improved IVX-based test includes three steps to tackle all the issues above regarding finite sample bias and variance terms. Thus, the test statistics perform well in size control, while its power performance is comparable with the original IVX. Monte Carlo simulations and an empirical study on the predictability of bond risk premia are provided to demonstrate the effectiveness of the newly proposed approach.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Kostakis, A., Magdalinos, T., and Stamatogiannis, M (2015) Robust Econometric Inference for Stock Return Predictability | 1.000 | 23 | 8 | 100% |
| 2 | Phillips, P. C. B. and Lee, J. H (2013) Predictive Regression under Various Degrees of Persistence and Robust Long-Horizon Regression | 1.000 | 18 | 9 | 100% |
| 3 | Hosseinkouchack, M. and Demetrescu, M (2021) Finite-Sample Size Control of IVX-Based Tests in Predictive Regressions | 1.000 | 18 | 5 | 100% |
| 4 | Ludvigson, S. C. and Ng, S (2009) Macro factors in bond risk premia | 0.874 | 15 | 2 | 100% |
| 5 | Xu, K. L. and Guo, J (2022) A New Test for Multiple Predictive Regression | 0.874 | 5 | 2 | 100% |
| 6 | Cochrane, J. H. and Piazzesi, M (2005) Bond risk premia | 0.811 | 4 | 2 | 100% |
| 7 | Demetrescu, M. and Rodrigues, P. M (2022) Residual-augmented ivx predictive regression | 0.693 | 5 | 1 | 100% |
| 8 | Campbell, J. and Yogo, M (2006) Efficient Tests of Stock Return Predictability | 0.511 | 2 | 1 | 100% |
| 9 | Hall, P. and Heyde, C (1980) Martingale Limit Theory and its Application | 0.511 | 2 | 1 | 100% |
| 10 | D'Amico, S. and King, T. B (2013) Flow and stock effects of large-scale treasury purchases: Evidence on the importance of local supply | 0.405 | 1 | 1 | 100% |
Showing the top 10 of 32 scored citations.
arXiv econ.EM papers that cite this one, ranked by how heavily they lean on it.
| Citing paper | Intensity | Mentions | Sections | |
|---|---|---|---|---|
| 1 | Robust Bond Risk Premia Predictability Test in the Quantiles | 0.754 | 14 | 4 |