Reverse Regressions and Long-Horizon Forecasting

  title={Reverse Regressions and Long-Horizon Forecasting},
  author={Min Wei and Jonathan H. Wright},
Long-horizon predictive regressions in …nance pose formidable econometric problems when estimated using available sample sizes. Hodrick (1992) proposed a remedy that is based on running a reverse regression of short-horizon returns on the long-run mean of the predictor. Unfortunately, this only allows the null of no predictability to be tested, and assumes stationary regressors. In this paper, we revisit long-horizon forecasting from reverse regressions, and argue that reverse regression… CONTINUE READING


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