Abstract
For a comprehensive set of 21 equity premium predictors we find extreme variation in out-of-sample predictability results depending on the choice of the sample split date. To resolve this issue we propose reporting in graphical form the out-of-sample predictability criteria for every possible sample split, and two out-of-sample tests that are invariant to the sample split choice. We provide Monte Carlo evidence that our bootstrap-based inference is valid. The in-sample, and the sample split invariant out-of-sample mean and maximum tests that we propose, are in broad agreement. Finally we demonstrate how one can construct sample split invariant out-of-sample predictability tests that simultaneously control for data mining across many variables.
Original language | English |
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Pages (from-to) | 188-201 |
Number of pages | 14 |
Journal | Journal of Banking and Finance |
Volume | 84 |
Early online date | 21 Oct 2016 |
DOIs | |
Publication status | Published - Nov 2017 |
Externally published | Yes |
Bibliographical note
© 2016 The Author(s). Published by Elsevier B.V.This is an open access article under the CC BY-NC-ND license.
(http://creativecommons.org/licenses/by-nc-nd/4.0/)
Keywords
- Equity premium predictability
- Out-of-sample inference
- Sample split choice
- Bootstrap