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Zhou, W., Gao, J., Harris, D. and Kew, H.

Semiparametric Single-index Predictive Regression

WP Number: 1918

Abstract: This paper studies a semiparametric single-index predictive regression model with multiple nonstationary predictors that exhibit co-movement behaviour. Orthogonal series expansion is employed to approximate the unknown link function in the model and the estimator is derived from an optimization under constraint. The main finding includes two types of super-consistency rates for the estimators of the index parameter. The central limit theorem is established for a plug-in estimator of the unknown link function. In the empirical studies, we provide ample evidence in favor of nonlinear predictability of the stock return using four pairs of nonstationary predictors.

Keywords: Predictive regression, Single-index model, Hermite orthogonal estimation, Dual super-consistency rates, Co-moving predictors

JEL Codes: C13 C14 C32 C51

Author links:

PDF: wp1918.pdf

Open Access Link: 10.17863/CAM.43917

Theme: empirical