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Nonparametric retrospection and monitoring of predictability of financial returns

Author

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  • Stanislav Anatolyev

    (NES)

Abstract
We develop and evaluate sequential testing tools for a class of nonparametric tests for predictability of financial returns that includes, in particular, the directional accuracy and excess profitability tests. We consider both the retrospective context where a researcher wants to track predictability over time in a historical sample, and the monitoring context where a researcher conducts testing as new observations arrive. Throughout, we elaborate on both two-sided and one-sided testing, focusing on linear monitoring boundaries that are continuations of horizontal lines corresponding to retrospective critical values. We illustrate our methodology by testing for directional and mean predictability of returns in a dozen of young stock markets in Eastern Europe.

Suggested Citation

  • Stanislav Anatolyev, 2006. "Nonparametric retrospection and monitoring of predictability of financial returns," Working Papers w0071, Center for Economic and Financial Research (CEFIR).
    • Handle: RePEc:cfr:cefirw:w0071
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    File URL: http://www.cefir.ru/papers/WP71Anatolyev_2.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Kulikova, Maria V. & Taylor, David R. & Kulikov, Gennady Yu., 2024. "Evolving efficiency of the BRICS markets," Economic Systems, Elsevier, vol. 48(1).
    2. Alenka Kavkler & Mejra Festić, 2011. "Modelling Stock Exchange Index Returns in Different GDP Growth Regimes," Prague Economic Papers, Prague University of Economics and Business, vol. 2011(1), pages 3-22.
    3. Kovačić, Zlatko, 2007. "Forecasting volatility: Evidence from the Macedonian stock exchange," MPRA Paper 5319, University Library of Munich, Germany.
    4. Kian-Ping Lim & Weiwei Luo & Jae H. Kim, 2013. "Are US stock index returns predictable? Evidence from automatic autocorrelation-based tests," Applied Economics, Taylor & Francis Journals, vol. 45(8), pages 953-962, March.
    5. Pierre Perron & Eduardo Zorita & Eiji Kurozumi, 2017. "Monitoring Parameter Constancy with Endogenous Regressors," Journal of Time Series Analysis, Wiley Blackwell, vol. 38(5), pages 791-805, September.

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    More about this item

    Keywords

    Testing; monitoring; predictability; stock returns;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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