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Predictive quantile regression with persistent covariates: IVX-QR approach

Lee, JiHyung (2015): Predictive quantile regression with persistent covariates: IVX-QR approach. Forthcoming in: Journal of Econometrics

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Abstract

This paper develops econometric methods for inference and prediction in quantile regression (QR) allowing for persistent predictors. Conventional QR econometric techniques lose their validity when predictors are highly persistent. I adopt and extend a methodology called IVX filtering (Magdalinos and Phillips, 2009) that is designed to handle predictor variables with various degrees of persistence. The proposed IVX-QR methods correct the distortion arising from persistent multivariate predictors while preserving discriminatory power. Simulations confirm that IVX-QR methods inherit the robust properties of QR. These methods are employed to examine the predictability of US stock returns at various quantile levels.

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