Instability of Return Prediction Models

By Bradley S. Paye, Allan G. Timmermann. 2006

423 citations recorded by the source corpus.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/55953bebf9e68d39d53c528357a837b96ef48ce6

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

In Finance

Citations in the corpus

Testing for Smooth Structural Changes in Time Series Models via Nonparametric Regression (2012, methodology): “…from Welch and Goyal (2008).18 We apply our tests to monthly and quarterly stock returns and compare them with the UD max and qLL tests, which have displayed overall good finite sample performance in our simulation study and have been used in Paye and Timmermann (2006) and Rapach and Wohar (2006).”
Market Expectations in the Cross Section of Present Values (2012, background): “…has evolved testing the predictive relation based on aggregate valuation ratios, including Stambaugh (1986, 1999), Hodrick (1992), Goetzmann and Jorion (1993), Nelson and Kim (1993), Kothari and Shanken (1997), Lewellen (2004), Paye and Timmermann (2006), and Pástor and Stambaugh (2009a).”
Selection of estimation window in the presence of breaks (2007, background): “In many empirical applications, as argued by Elliott (2005) and Paye and Timmermann (2004) , it can be di�cult to obtain a precise estimate of the time and size of a potential break.”
Expected Returns and Expected Growth in Rents of Commercial Real Estate (2010, positive): “An alternative approach to deal with the persistence of a predictor variable in a predictive regression is to argue that this persistence reflects occasional structural breaks in the series (Paye and Timmermann (2006) and Lettau and Van Nieuwerburgh (2008)).”
Predictive Regressions with Time-Varying Coefficients (2012, neutral): “between the dividend yield and equity returns. Paye and Timmermann (2006) , in contrast,”
Testing predictive regression models with nonstationary regressors (2014, positive): “That is, x t is stationary ( | ρ | < 1); see Viceira (1997), Amihud and Hurvich (2004), Paye and Timmermann (2006) and Amihud et al. (2009); or it is unit root or integrated ( ρ = 1), denoted by I(1); or it is local-to-unity or nearly integrated ( ρ = 1 + c / n , where c < 0), denoted by NI(1);…”
Short Interest and Aggregate Stock Returns (2016, background): “analyzing the temporal stability of predictive regressions: it is asymptotically efficient for a wide variety of breaking processes, and Paye and Timmermann (2006) show via simulations that the test has excellent finite-sample properties for predictive regressions with highly persistent predictors.”
A review of change point detection methods (2018, methodology): “More recently, this model has for instance been used to show that the predictive linear model of stock returns can change abruptly [110].”
The dividend-price ratio does predict dividend growth: International evidence (2009, neutral): “Paye and Timmermann (2006), the literature on return predictability”
The Evolution of Stock Market Efficiency Over Time: A Survey of the Empirical Literature (2011, background): “Second, researchers have recently begun to examine the structural stability of the parameters in traditional predictive regression models of aggregate stock returns (see, for example, Paye and Timmermann, 2006; Rapach and Wohar, 2006; Lettau and Nieuwerburgh, 2008; Hjalmarsson, 2009).”
Time-varying sparsity in dynamic regression models (2014, positive): “Sims (1980), Stock and Watson (1996), Cogley and Sargent (2001, 2005), Primicery (2005), Paye and Timmermann (2006), Ang and Bekaert (2007), Canova (2007), and Lettau and Van Nieuwerburgh (2008) are some studies providing evidence of time varying regressor coefficients in inflation and equity…”