On 17th September, the Faculty of Finance at the City University of Macau organized the Second Academic Salon (2024-2025) at the Taipa campus. It was delivered by Dr. Hsein Kew from Monash University. His research paper titled “Stock Return Predictability Using Semiparametric Single-Index Predictive Regression Models with Cointegrated Regressors”. This paper considers the estimation of a semi-parametric single-index regression model that allows for nonlinear predictive relationships. This model is useful for predicting financial asset returns, whose observed behavior resembles a stationary process if the multiple nonstationary predictors are cointegrated. The presence of cointegrated regressors imposes a single-index structure in the model, and this structure not only balances the non-stationarity properties of the multiple predictors with the stationarity properties of asset returns but also avoids the curse of dimensionality associated with nonparametric regression function estimation. An orthogonal series expansion is used to approximate the unknown link function for the single-index component. This paper considers the constrained nonlinear least squares estimator of the single-index (or the cointegrating) parameters and the plug-in estimator of the link function and derives their asymptotic properties. In an empirical application, this paper finds some evidence of in-sample nonlinear predictability of U.S. stock returns using cointegrated predictors. We also find that the single-index model in general produces better out-of-sample forecasts than both the historical average benchmark and the linear predictive regression model.
Dr. Kew is a Senior Lecturer in the Department of Econometrics and Business Statistics of Monash University. His research interests include time-series analysis, heteroskedastic models, non-parametric methods etc. He has published papers in the Journal of Econometrics, Econometric Theory, Journal of Time Series Analysis, and others.
During this Academic Salon, Dr. Kew shared his latest research results with the Faculty of Finance, broadening the research horizons of the Faculty of Finance. The Academic Salon organized by the Faculty of Finance at City University of Macau serves as a platform for exchanging academic ideas and fostering academic awareness. With finance as the main focus, we invite senior scholars/experts from academia and the financial industry to engage in research discussions on cutting-edge topics and share industry development trends, aiming to provide a fresh academic experience and thinking model for CityU students and faculty members. Through activities like the Academic Salon, we hope to offer graduate students a better academic platform, encouraging further exploration and research on academic issues.