Is Time-Series Based Predictability Evident in Real Time?

36 Pages Posted: 30 Nov 2001  

Michael J. Cooper

University of Utah - David Eccles School of Business

Huseyin Gulen

Purdue University - Krannert School of Management

Date Written: March 2004

Abstract

We show that out-of-sample tests used in the time-series predictability literature may suffer from test-size problems related to the common practice of exogenous specification of critical parameters, such as the choice of predictive variables, traded assets, and in-sample estimation periods. We perform specification searches across these parameters and find that rejections of the null hypothesis of no predictability are very sensitive to minor variations in parameter specification. We perform simulations using random factors to determine if the observed predictability in the data is real. The simulations suggest that much of the literatures' out-of-sample evidence of time-series based predictability is consistent with data-snooping.

JEL Classification: C53, G10, G11, G12, G14

Suggested Citation

Cooper, Michael J. and Gulen, Huseyin, Is Time-Series Based Predictability Evident in Real Time? (March 2004). Available at SSRN: https://ssrn.com/abstract=292620 or http://dx.doi.org/10.2139/ssrn.292620

Michael J. Cooper (Contact Author)

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Huseyin Gulen

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Paper statistics

Downloads
423
Rank
54,465
Abstract Views
2,342