Harvard Institute of Economic Research Discussion Paper Number 1972 Efficient Tests of Stock Return Predictability by John Y . Campbell and Motohiro Yogo September 2002

@inproceedings{Campbell2002HarvardIO,
title={Harvard Institute of Economic Research Discussion Paper Number 1972 Efficient Tests of Stock Return Predictability by John Y . Campbell and Motohiro Yogo September 2002},
author={John Y. Campbell and Motohiro Yogo},
year={2002}
}

Empirical studies have suggested that stock returns can be predicted by financial variables such as the dividend-price ratio. However, these studies typically ignore the high persistence of predictor variables, which can make first-order asymptotics a poor approximation in finite samples. Using a more accurate asymptotic approximation, we propose two methods to deal with the persistence problem. First, we develop a pretest that determines when the conventional t-test for predictability is… CONTINUE READING

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Annals of Statistics

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