Westerlund and Narayan predictability test: Step-by-step approach using COVID-19 and oil price data
1Centre for Financial Econometrics & Department of Finance, Faculty of Business and Law, Deakin University, 221 Burwood Highway, Burwood, Victoria 3125, Australia.
Abstract:
In this note, we provide a step-by-step approach of Westerlund and Narayan (WN, 2012, 2015) predictability test using COVID-19 and oil price data. This is an important exercise because the WN model addresses three salient features of time series data, namely persistency, endogeneity and heteroskedasticity. We consider COVID-19 and oil price data as predictors of stock market returns for four Asian countries to demonstrate the applicability of the WN (2012, 2015) predictability approach.•This note demonstrates a step-by-step approach of the WN (2012, 2015) predictability test.•WN model accommodates three salient features of time-series data, namely persistency, endogeneity, and heteroskedasticity.•COVID-19 and oil price does not significantly predict stock returns of Japan, Russia, and Singapore (except in the case of South Korea).
Related Concept Videos
Residuals and Least-Squares Property
If the observed data point lies above the line, the residual is positive, and the line underestimates the actual data value for y. If the observed data point lies below the line, the residual is negative, and the line overestimates the actual data value for y.
The process of fitting the best-fit...
Residual Plots
When the residual values are plotted against the variable x, it is called a residual...
Prediction Intervals
However, the point estimate is most likely not the exact value of the population parameter, but close to it. After calculating point estimates, we construct interval estimates, called confidence intervals or prediction intervals. This prediction interval comprises a range of values unlike the point estimate and is a better predictor of the observed sample value, y.
The...
Wald-Wolfowitz Runs Test I
The test works...
End Point Prediction: Gran Plot
For potentiometric titration, the Gran plot is created by plotting the...
First Derivative Test: Problem Solving


