Why Long Horizons? A Study of Power Against Persistent Alternatives

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Why Long Horizons? A Study of Power Against Persistent Alternatives

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Title: Why Long Horizons? A Study of Power Against Persistent Alternatives
Author: Campbell, John
Citation: Campbell, John Y. 2001. Why long horizons? A study of power against persistent alternatives. Journal of Empirical Finance 8, no. 5: 459-491.
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Abstract: This paper studies tests of predictability in regressions with a given AR(1) regressor and an asset return dependent variable measured over a short or long horizon. The paper shows that when there is a persistent predictable component in the return, an increase in the horizon may increase the R2 statistic of the regression and the approximate slope of a predictability test. Monte Carlo experiments show that long-horizon regression tests have serious size distortions when asymptotic critical values are used, but some versions of such tests have power advantages remaining after size is corrected.
Published Version: http://dx.doi.org/10.1016/S0927-5398(01)00037-8
Terms of Use: This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:3196341

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  • FAS Scholarly Articles [7106]
    Peer reviewed scholarly articles from the Faculty of Arts and Sciences of Harvard University
 
 

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