Long-horizon regressions: theoretical results and applications

I use asymptotic arguments to show that the t-statistics in long-horizon regressions do not converge to well-defined distributions. In some cases, moreover, the ordinary least squares estimator is not consistent and the R 2 is an inadequate measure of the goodness of fit. These findings can partially explain the tendency, of long-horizon regressions to find "significant" results where previous short-term approaches find none. I propose a rescaled t-statistic, whose asymptotic distribution is easy to simulate, and revisit some of the long-horizon evidence on return predictability and of the Fisher effect. (C) 2003 Elsevier Science B.V. All rights reserved.