August 2nd, 2013 by Stephan Smeekes
Robust Block Bootstrap Panel Predictability Tests
Stephan Smeekes and Joakim Westerlund
Most panel data studies of the predictability of returns presume that the cross-sectional units are independent, an assumption that is not realistic. As a response to this, the current paper develops block bootstrap-based panel predictability tests that are valid under very general conditions. Some of the allowable features include heterogeneous predictive slopes, persistent predictors, and complex error dynamics, including cross-unit endogeneity.