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Article

Does The Macroeconomy Predict UK Asset Returns In A Nonlinear Fashion? Comprehensive Out-Of-Sample Evidence

Citation
Guidolin M, Hyde S, McMillan D & Ono S (2014) Does The Macroeconomy Predict UK Asset Returns In A Nonlinear Fashion? Comprehensive Out-Of-Sample Evidence. Oxford Bulletin of Economics and Statistics, 76 (4), pp. 510-535. https://doi.org/10.1111/obes.12035

Abstract
We perform a comprehensive examination of the recursive, comparative predictive performance of linear and nonlinear models for UK stock and bond returns. We estimate Markov switching, threshold autoregressive (TAR) and smooth transition autoregressive (STR) regime switching models and a range of linear specifications including models with GARCH type specifications. Results demonstrate UK asset returns require nonlinear dynamics to be modelled with strong evidence in favour of Markov switching frameworks. Our results appear robust to the choice of sample period, changes in loss functions and to the methodology employed to test for equal predictive accuracy. The key findings extend to a similar sample of US data.

Journal
Oxford Bulletin of Economics and Statistics: Volume 76, Issue 4

StatusPublished
Author(s)Guidolin, Massimo; Hyde, Stuart; McMillan, David; Ono, Sadayuki
Publication date31/08/2014
Publication date online09/06/2013
URLhttp://hdl.handle.net/1893/22664
PublisherUniversity of Oxford and Wiley-Blackwell
ISSN0305-9049
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