Testing for predictability in panels of any time series dimension

Research output: Contribution to journalArticle

Abstract

The few panel data tests for predictability of returns that exist are based on the prerequisite that both the number of time series observations, $T$, and the number of cross-section units, $N$, are large. As a result, these tests are impossible for stock markets where lengthy time series data are scarce. In response to this, the current paper develops a new test for predictability in panels where $N$ is large and $T \geq 2$ can be small or large, or indeed anything in between the two extremes. This consideration represents an advancement when compared to the usual large-$N$ and large-$T$ requirement. The new test is also very general, especially when it comes to the allowable predictors, and it is easy to implement. As an illustration, we consider the Chinese stock market, for which data is only available for 17 years but where the number firms is relatively large, 160.

Details

Authors
Organisations
External organisations
  • Deakin University
Research areas and keywords

Subject classification (UKÄ) – MANDATORY

  • Economics and Business

Keywords

  • Panel data, Predictive regression, Stock return predictability, China
Original languageEnglish
Pages (from-to)1162–1177
Number of pages16
JournalInternational Journal of Forecasting
Volume32
Issue number4
Publication statusPublished - 2016
Publication categoryResearch
Peer-reviewedYes