COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 1454 A Quantilogram Approach to Evaluating Directional Predictability Oliver Linton and Yoon-Jae Whang March 2004 In this note we propose a simple method of measuring directional predictability and
testing for the hypothesis that a given time series has no directional predictability. The
test is based on the correlogram of quantile hits. We provide the distribution theory
needed to conduct inference, propose some model free upper bound critical values, and
apply our methods to stock index return data. The empirical results suggests some
directional predictability in returns especially in mid range quantiles like 5%-10%. |
