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Robustness of Multistep Forecasts and Predictive Regressions at Intermediate and Long Horizons

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  • Chevillon, Guillaume

    (ESSEC Research Center, ESSEC Business School)

Abstract

This paper studies the properties of multi-step projections, and forecasts that are obtained using either iterated or direct methods. The models considered are local asymptotic: they allow for a near unit root and a local to zero drift. We treat short, intermediate and long term forecasting by considering the horizon in relation to the observable sample size. We show the implication of our results for models of predictive regressions used in the financial literature. We show here that direct projection methods at intermediate and long horizons are robust to the potential misspecification of the serial correlation of the regression errors. We therefore recommend, for better global power in predictive regressions, a combination of test statistics with and without autocorrelation correction.

Suggested Citation

  • Chevillon, Guillaume, 2017. "Robustness of Multistep Forecasts and Predictive Regressions at Intermediate and Long Horizons," ESSEC Working Papers WP1710, ESSEC Research Center, ESSEC Business School.
    • Handle: RePEc:ebg:essewp:dr-17010
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    References listed on IDEAS

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    2. José Luis Montiel Olea & Mikkel Plagborg‐Møller, 2021. "Local Projection Inference Is Simpler and More Robust Than You Think," Econometrica, Econometric Society, vol. 89(4), pages 1789-1823, July.

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    More about this item

    Keywords

    Multi-step Forecasting; Predictive Regressions; Local Asymptotics; Dynamic Misspecification; Finite Samples; Long Horizons;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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