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A Random Coefficient Approach to the Predictability of Stock Returns in Panels

In English

Författare

Summary, in English

Most studies of the predictability of returns are based on time series data, and whenever

panel data are used, the testing is almost always conducted in an unrestricted unitby-

unit fashion, which makes for a very heavy parametrization of the model. On the

other hand, the few panel tests that exist are too restrictive in the sense that they are

based on homogeneity assumptions that might not be true. As a response to this, the

current paper proposes new predictability tests in the context of a random coefficient

panel data model, in which the null of no predictability corresponds to the joint restriction

that the predictive slope has zero mean and variance. The tests are applied to a large

panel of stocks listed at the New York Stock Exchange. The results suggest that while

the predictive slopes tend to average to zero, in case of book-to-market and cash flow-toprice

the variance of the slopes is positive, which we take as evidence of predictability

Publiceringsår

2014-02-20

Språk

Engelska

Publikation/Tidskrift/Serie

Journal of Financial Econometrics

Dokumenttyp

Artikel i tidskrift

Förlag

Oxford University Press

Ämne

  • Economics

Nyckelord

  • Panel data
  • Predictive regression
  • Stock return predictability

Status

Published

ISBN/ISSN/Övrigt

  • ISSN: 1479-8409