Consistently Valid Tests for Predictive Regression and Empirical Study in Chinese Market
Predictive regression is an important econometric model used to test the predictability of financial markets,but the existing testing methods,such as the traditional T test and the method proposed by Campbell and Yogo(2006)[1],are not consistently valid in the region of|ρ|≤ 1.In this paper,we propose a new test method,which combine Hansen(1999)[2]'s grid bootstrap method which is consistently valid over the region of|ρ|≤ 1 and Campbell and Yogo(2006)[1]'s Q test which is more powerful by Bonferroni method.Results of simulation analysis show that the probability of the Type I error of this test is close to the theoretical value 5％in the range of|ρ|≤ 1.Moreover,the power test also shows that this test outperforms the commonly used method from Campbell and Yogo(2006)[1].By using the method proposed in this paper,we find that nearness to 52-week high,technical indicator,PPI and CPI have the predictability in Chinese stock market.
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