Campbell, John2009-07-222001Campbell, John Y. 2001. Why long horizons? A study of power against persistent alternatives. Journal of Empirical Finance 8, no. 5: 459-491.0927-5398http://nrs.harvard.edu/urn-3:HUL.InstRepos:3196341This 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.en-USlong-horizon regressionspowerapproximate slope10.1016/S0927-5398(01)00037-8