The equity premium, return on equity minus return on risk-free asset, is expected to be positive. We consider imposing such positivity constraint in local historical average (LHA) in nonparametric kernel regression framework. It is also extended to the semiparametric single index model when...

This paper considers nonparametric and semiparametric regression models subject to monotonicity constraint. We use bagging as an alternative approach to Hall and Huang (2001). Asymptotic properties of our proposed estimators and forecasts are established. Monte Carlo simulation is conducted to...

This paper considers nonparametric and semiparametric regression models subject to monotonicity constraint. We use bagging as an alternative approach to Hall and Huang (2001). Asymptotic properties of our proposed estimators and forecasts are established. Monte Carlo simulation is conducted to...

Using the conventional VAR identification approach, Cochrane (Quarterly Journal of Economics 107: 241-65, 1994) finds that substantial amounts of variation in GDP growth and stock returns are due to transitory shocks. Following the common trend decomposition of King etal. (American Economic...

When the objective is to forecast a variable of interest but with many explanatory variables available, one could possibly improve the forecast by carefully integrating them. There are generally two directions one could proceed: combination of forecasts (CF) or combination of information (CI)....

We examine the Stein-rule shrinkage estimator for possible improvements in estimation and forecasting when there are many predictors in a linear time series model. We consider the Stein-rule estimator of Hill and Judge (1987) that shrinks the unrestricted unbiased OLS estimator towards a...

The literature on excess return prediction has considered a wide array of estimation schemes, among them unrestricted and restricted regression coefficients. We consider bootstrap aggregation (bagging) to smooth parameter restrictions. Two types of restrictions are considered: positivity of the...

Following Diebold and Li (2006), we use the Nelson-Siegel (NS, 1987) yield curve factors. However the NS yield curve factors are not supervised for a specifi?c forecast target in the sense that the same factors are used for forecasting different variables, e.g., output growth or infl?ation. We...