A Quantilogram Approach to Evaluating Directional Predictability
25 Pages Posted: 10 Jan 2004
Date Written: March 2004
In this note we propose a simple method of measuring directional predictability and testing for the hypothesis that a given time series has no directional predictability. The test is based on the correlogram of quantile hits. We provide the distribution theory needed to conduct inference, propose some model free upper bound critical values, and apply our methods to stock index return data. The empirical results suggests some directional predictability in returns especially in mid range quantiles like 5%-10%.
Keywords: Correlogram, Dependence, Efficient Markets, Empirical Process, Portmanteau, Quantiles
JEL Classification: C12, C13, C14, C22
Suggested Citation: Suggested Citation