Testing for monotonicity in expected asset returns

Arbeitspapier

Many postulated relations in finance imply that expected asset returns strictly increase in an underlying characteristic. To examine the validity of such a claim, one needs to take the entire range of the characteristic into account, as is done in the recent proposal of Patton and Timmermann (2010). But their test is only a test for the direction of monotonicity, since it requires the relation to be monotonic from the outset: either weakly decreasing under the null or strictly increasing under the alternative. When the relation is non-monotonic or weakly increasing, the test can break down and falsely 'establish' a strictly increasing relation with high probability. We offer some alternative tests that do not share this problem. The behavior of the various tests is illustrated via Monte Carlo studies. We also present empirical applications to real data.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Working Paper ; No. 17 [rev.]

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Hypothesis Testing: General ; Financial Econometrics ; Asset Pricing; Trading Volume; Bond Interest Rates ; Information and Market Efficiency; Event Studies; Insider Trading
• Thema: Bootstrap ; CAPM ; Monotonicity tests ; Non-monotonic relations ; Kapitaleinkommen ; Prognoseverfahren ; Bootstrap-Verfahren ; Statistischer Test ; CAPM

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Romano, Joseph P. ; Wolf, Michael
• Ereignis: Veröffentlichung
• (wer): University of Zurich, Department of Economics
• (wo): Zurich
• (wann): 2013

Weitere Informationen

• DOI: doi:10.5167/uzh-71860
• Handle: http://hdl.handle.net/10419/77591
• Letzte Aktualisierung: 10.03.2025, 11:45 MEZ