Publication date: Available online 5 September 2019
Source: Finance Research Letters
Author(s): Jae H. Kim, Abul Shamsuddin
Abstract
A bootstrap test is proposed for predictability of asset returns. The bootstrap is conducted with the likelihood ratio test in a restricted VAR form. The test shows no size distortion in small samples with desirable power properties. A wild bootstrap version, valid for financial returns showing unknown forms of conditional heteroskedasticty, is also proposed. As an application, predictive powers of dividend-price ratio and interest rate for U.S stock returns are evaluated.