Munich Personal RePEc Archive

Inference for Noisy Long Run Component Process

Gourieroux, Christian and Jasiak, Joann (2010): Inference for Noisy Long Run Component Process.

[img]
Preview
PDF
MPRA_paper_98987.pdf

Download (639kB) | Preview

Abstract

This paper introduces a new approach to the modelling of a stationary long run component, which is an autoregressive process with near unit root and small sigma innovation. We show that a combination of a noise and a long run component can explain the long run predictability puzzle pointed out in Fama-French (1988). Moreover in the presence of a long run component, spurious regressions arise and misleading long run predictions are obtained when standard statistical approaches are applied

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.