NDLI: International stock return predictability: Is the role of U.S. time-varying?

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International stock return predictability: Is the role of U.S. time-varying?

Content Provider	Springer Nature Link
Author	Aye, Goodness C. Balcilar, Mehmet Gupta, Rangan
Copyright Year	2015
Abstract	This study investigates the predictability of 11 industrialized stock returns with emphasis on the role of U.S. returns. Using monthly data spanning 1980:2–2014:12, we show that there exist multiple structural breaks and nonlinearities in the data. Therefore, we employ methods that are capable of accounting for these and at the same time date stamping the periods of causal relationship between the U.S. returns and those of the other countries. First we implement a subsample analysis which relies on the set of models, data set and sample range as in Rapach et al. (J Finance LXVIII(4):1633–1662, 2013). Our results show that while the U.S. returns played a strong predictive role based on the OLS pairwise Granger causality predictive regression and news-diffusion models, its role based on the adaptive elastic net model is weak. Second, we implement our preferred model: a bootstrap rolling window approach using our newly updated data on stock returns for each countries, and find that U.S. stock return has significant predictive ability for all the countries at certain sub-periods. Given these results, it would be misleading to rely on results based on constant-parameter linear models that assume that the relationship between the U.S. returns and those of other industrialized countries are permanent, since the relationship is, in fact, time-varying, and holds only at specific periods.
Starting Page	121
Ending Page	146
Page Count	26
File Format	PDF
ISSN	03408744
Journal	Empirica
Volume Number	44
Issue Number	1
e-ISSN	15736911
Language	English
Publisher	Springer US
Publisher Date	2015-12-31
Publisher Place	New York
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Stock returns Predictability Structural breaks Nonlinearity Time varying causality European Integration International Economics Macroeconomics/Monetary Economics//Financial Economics Econometrics Industrial Organization Public Finance
Content Type	Text
Resource Type	Article
Subject	Geography, Planning and Development Development Economics and Econometrics

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