Predictability Tests for the Expectations Hypothesis in the Presence of MA Disturbances
44 Pages Posted: 7 Nov 2009 Last revised: 16 Mar 2011
Date Written: September 30, 2009
This paper develops new inference methods for testing the expectations hypothesis in a general econometric framework. In particular, we consider nonparametric tests of the predictability of excess returns in the presence of MA disturbances. We discuss several alternatives of aggregation and investigate their asymptotic and finite sample properties. We illustrate that the serial dependence tests can also provide valid information for identifying particular economic alternatives when testing the expectations hypothesis in foreign exchange markets.
Keywords: Expectations hypothesis, excess returns, MA disturbances, variance ratio test, Box-Pierce test, Fama-French test, pooled method, minimum/maximum method
JEL Classification: C14, F31, F37
Suggested Citation: Suggested Citation