Rustam Ibragimov, Jihyun Kim, Anton Skrobotov
arXiv 12 Nov 2025 · Econometrics
arXiv:2511.09249 · PDF · DOI · OpenAlex · Extracted main text
This paper develops robust inference methods for predictive regressions that address key challenges posed by endogenously persistent or heavy-tailed regressors, as well as persistent volatility in errors. Building on the Cauchy estimation framework, we propose two novel tests: one based on $t$-statistic group inference and the other employing a hybrid approach that combines Cauchy and OLS estimation. These methods effectively mitigate size distortions that commonly arise in standard inference procedures under endogeneity, near nonstationarity, heavy tails, and persistent volatility. The proposed tests are simple to implement and applicable to both continuous- and discrete-time models. Extensive simulation experiments demonstrate favorable finite-sample performance across a range of realistic settings. An empirical application examines the predictability of excess stock returns using the dividend-price and earnings-price ratios as predictors. The results suggest that the dividend-price ratio possesses predictive power, whereas the earnings-price ratio does not significantly forecast returns.
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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 | Shephard, Neil (2020) An estimator for predictive regression: reliable inference for financial economics | 1.000 | 5 | 3 | 100% |
| 2 | Ibragimov, Rustam and Kim, Jihyun and Skrobotov, Anton (2024) New robust inference for predictive regressions self | 0.981 | 18 | 6 | 94% |
| 3 | Choi, Y. and Jacewitz, S. and Park, J. Y (2016) A reexamination of stock return predictability | 0.956 | 16 | 7 | 88% |
| 4 | Ibragimov, R. and M\ (2010) $t$-statistic Based Correlation and Heterogeneity Robust Inference self | 0.843 | 4 | 3 | 75% |
| 5 | Kostakis, A. and Magdalinos, T. and Stamatogiannis, M (2015) Robust econometric inference for stock return predictability | 0.830 | 21 | 10 | 57% |
| 6 | Ibragimov, Marat and Ibragimov, Rustam and Walden, Johan (2015) Heavy-tailed Distributions and Robustness in Economics and Finance self | 0.811 | 4 | 2 | 100% |
| 7 | Phillips, P. C. B. and Magdalinos, T (2007) Limit theory for moderate deviations from a unit root | 0.737 | 3 | 2 | 100% |
| 8 | Phillips, Peter C. B. and Magdalinos, Tassos (2007) Limit Theory for Moderate Deviations from a Unit Root under Weak Dependence | 0.659 | 7 | 2 | 43% |
| 9 | Matei Demetrescu and Iliyan Georgiev and Paulo M.M. Rodrigues and A.… (2023) Extensions to IVX methods of inference for return predictability | 0.644 | 3 | 2 | 67% |
| 10 | Campbell, J.Y. and Yogo, M (2006) Efficient tests of stock return predictability | 0.585 | 3 | 1 | 100% |
Showing the top 10 of 65 scored citations.