TY - JOUR AU - Campbell, John Y TI - Why Long Horizons: A Study of Power Against Persistent Alternatives JF - National Bureau of Economic Research Technical Working Paper Series VL - No. 142 PY - 1993 Y2 - September 1993 DO - 10.3386/t0142 UR - http://www.nber.org/papers/t0142 L1 - http://www.nber.org/papers/t0142.pdf N1 - Author contact info: John Y. Campbell Morton L. and Carole S. Olshan Professor of Economics Department of Economics Harvard University Littauer Center 213 Cambridge, MA 02138 Tel: 617/496-6448 Fax: 617/495-7730 E-Mail: john_campbell@harvard.edu AB - This paper studies tests of predictability in regressions with a given AR(1) regressor and an asset return dependent variable measured over a short or long horizon. The paper shows that when there is a persistent predictable component in the return, an increase in the horizon may increase the R2 statistic of the regression and the approximate slope of a predictability test. Mone Carlo experiments show that long-horizon regression tests have serious size distortions when asymptotic critical values are used, but some versions of such tests have power advantages remaining after size is corrected. ER -