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| Author: | Neely, C. J. Weller, P. |
| Title: | Predictability in International Asset Returns: A Reexamination |
| Journal: | Journal of Financial and Quantitative Analysis
2000 : DEC, VOL. 35:4, p. 601-620 |
| Index terms: | ASSETS EQUITY CAPITAL AUTOREGRESSION |
| Language: | eng |
| Abstract: | This paper argues that inferring long-horizon asset return predictability from the properties of vector autoregressive (VAR) models on relatively short spans of data is potentially unreliable. The authors illustrate the problems that can arise by reexamining the findings of Bekaert and Hodrick (1992), who detected evidence of in-sample predictability in international equity and foreign exchange markets using VAR methodology for a variety of countries from 1981-1989. The VAR predictions are significantly biased in most out-of- sample forecasts and are conclusively outperformed by a simple benchmark model at horizons of up to six months. |
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