Previous literature indicates that stock returns are predictable by several strongly autocorrelated forecasting variables, especially at longer horizons. It is suggested that this finding is spurious and follows from a neglected near unit root problem. Instead of the commonly used t test we...

In some cases the unit root or near unit root behavior of linear autoregressive models fitted to economic time series is not in accordance with the underlying economic theory. To accommodate this feature we consider a threshold autoregressive process with the threshold effect only in the...

The expectations hypothesis of the term structure of interest rates is tested using monthly Eurodollar deposit rates for maturities 1, 3 and 6 months covering the period 1983:1 -1996:6.Whereas classical regression-based tests indicate rejection, tests based on a new model allowing for potential...