Non‐linear Predictability of UK Stock Market Returns*
用指数平滑转换阈值模型检验英国股票市场收益率的非线性特征，发现该模型比线性模型更能刻画大收益与小收益下的不同市场动态。
Abstract Linear predictability of stock market returns has been widely reported. However, recently developed theoretical research has suggested that due to the interaction of noise and arbitrage traders, stock returns are inherently non‐linear, whereby market dynamics differ between small and large returns. This paper examines whether an exponential smooth transition threshold model, which is capable of capturing this non‐linear behaviour, can provide a better characterization of UK stock market returns than either a linear model or an alternate non‐linear model. The results of both in‐sample and out‐of‐sample specification tests support the exponential smooth transition threshold model and hence the belief that investor behaviour does differ between large and small returns.