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 robust tests such as robust conditional test and Q-test, are...

This paper shows that the estimates in the spot return regression in the foreign exchange markets may not convey valid information if exchange rates are generated from the present value model with the near unit discount factor and unit root fundamentals. The main reason is that the present value...