Aït Sahalia (1996), Stanton (1997) and Jiang (1998) apply nonparametric and semi-parametric estimators to the short term interest rate and find strong nonlinearities in the drift function. In this paper we apply resistant techniques to the estimation of the drift and diffusion function. We show...

We analyze the discrimination power of well-known model selection criteria when R2 is low as in typical asset return predictability studies. We find that the discrimination power is low in this setup and in particular give another interpretation to the well-cited Bossaerts and Hillion (1999)...