Why Long Horizons? A Study of Power Against Persistent Alternatives
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CitationCampbell, John Y. 2001. Why long horizons? A study of power against persistent alternatives. Journal of Empirical Finance 8, no. 5: 459-491.
AbstractThis 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.
Citable link to this pagehttp://nrs.harvard.edu/urn-3:HUL.InstRepos:3196341
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