HKU HKU Dept of Statistics & Actuarial Science, HKU

Seminar by Prof. Qingliang FAN from Department of Economics, The Chinese University of Hong Kong

DateWednesday, 24 April 2024
Time2:30 p.m. – 3:30 p.m.
VenueRR301, Run Run Shaw Building
TitlePredictability of bond risk premia in the quantiles: A robust inference perspective

To test the predictability of U.S. bond risk premia at different quantile levels, we propose a robust hypothesis testing procedure for the predictability of multiple predictors that could be highly persistent. Our method extends the popular extended instrumental variable (IVX) in mean regression to a two-step quantile regression framework. We address the size distortion induced by two higher-order terms of the aforementioned inference procedure. To tackle the problem of power loss, we construct a power-enhanced test statistic. When constructing the final test statistic, we introduce an accurate density estimator of the error term in quantile regression. The final test, therefore, obtains good size and power performance simultaneously, especially at tails and in multivariate models with many predictors.

Numerical simulations and an empirical study on the predictability of bond returns are provided to demonstrate the effectiveness of the newly proposed approach. Using U.S. monthly macroeconomic data from 1960-2022, we find that the heterogeneous predicting power of the macroeconomic variables.

Joint work with Xiaosai Liao and Xinjue Li.

About the speaker

Qingliang Fan is an Associate Professor of Economics at The Chinese University of Hong Kong. His current research focuses on causal inference with machine learning and portfolio studies. His previous work was published in Econometric Theory, Journal of Business and Economics Statistics, Journal of Econometrics, Review of Economics and Statistics, and Strategic Management Journal. He is a member of the executive and postgraduate committee of the Computational Social Science Laboratory at CUHK. Before joining CUHK in 2020, he was on the faculty of Xiamen University.