This paper investigates, both in finite samples and asymptotically, statistical inference on predictive regressions where time series are generated by present value models of asset prices. We show that regression-based tests, including optimal robust tests such as Jasson and Moreira's...

This paper develops new inference methods for testing the expectations hypothesis in a general econometric framework. In particular, we consider nonparametric tests of the predictability of excess returns in the presence of MA disturbances. We discuss several alternatives of aggregation and...

Using USD bilateral exchange rates in 1975-2009, we find that the strong predictability of foreign excess returns documented in the literature is mainly driven by a particular sample period. We first show that both the statistically significant positive serial dependence of excess returns in the...

We propose a simple identification scheme for the causes of the violations of uncovered interest parity. Our method uses the serial dependence patterns of excess returns as a criterion for judging performance of economic models. We show that a mean reverting component in excess returns,...

The purpose of this study is to address this puzzle from a new approach. Rather than pursuing a linkage between macro-fundamentals and exchange rates, we focus on the market sentiment index as a factor that could possibly enhance exchange rate predictability. The analysis folds into three...