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Table 14 Regression with Mean Reversion Indicator and Good Time Indicator Controlled

From: Timing the market: the economic value of price extremes

Panel A. Monthly Data Observations
PMLFt IMA,tMRIt (1-IMA,t)MRIt IMA,t+1MRIt+1 (1-IMA,t+1)MRIt+1
0.136***     
0.105*** -0.178*** -0.174**   
0.130*** -1.071*** -1.147*** 0.981*** 1.063***
Panel B. Quarterly Data Observations
PMLFt IMA,tMRIt (1-IMA,t)MRIt IMA,t+1MRIt+1 (1-IMA,t+1)MRIt+1
0.292***     
0.259*** -0.007 -0.008   
0.396*** -0.059*** -0.073*** 0.077*** 0.106***
  1. Note. Our benchmark model is PMGFt+1=C+PMLtFt+1, where PMGF and PMLF are filtered observations. Filtered observations are used to alleviate the contamination of autocorrelations in PMG and PML.Regression with mean reversion indicator controlled is presented as follows,
  2. \( {\displaystyle \begin{array}{l}{{PMG^F}_t}_{+1}=\kern0.5em \mathrm{C}\kern0.5em +\kern0.5em \upalpha {PML_t}^F+\kern0.5em {\upbeta}_1{\mathrm{I}}_{\mathrm{MA},\mathrm{t}}{\mathrm{MRI}}_{\mathrm{t}}+{\upbeta}_2\left(1\hbox{-} {\mathrm{I}}_{\mathrm{MA},\mathrm{t}}{\mathrm{MRI}}_{\mathrm{t}}\right)+{\upvarepsilon}_{\mathrm{t}+1,}\\ {}{{PMG_t}^F}_{+1}=C+\upalpha {PML_t}^F+{\upbeta}_1{\mathrm{I}}_{\mathrm{MA},\mathrm{t}}{\mathrm{MRI}}_{\mathrm{t}}+{\upbeta}_2\left(1\hbox{-} {\mathrm{I}}_{\mathrm{MA},\mathrm{t}}{\mathrm{MRI}}_{\mathrm{t}}\right)+{\upbeta}_3{\mathrm{I}}_{\mathrm{MA},\mathrm{t}+1}{\mathrm{MRI}}_{\mathrm{t}+1}+{\upbeta}_4\left(1\hbox{-} {\mathrm{I}}_{\mathrm{MA},\mathrm{t}+1}{\mathrm{MRI}}_{\mathrm{t}+1}\right)+{\upvarepsilon}_{\mathrm{t}+1.},\end{array}} \)
  3. This regression follows Huang et al. (2015) who use the following state-dependent regression to predict stock returns, rt+1
  4. rt + 1 = C + β1IMA, tMRIt + β2(1 ‐ IMA, tMRIt) + εt + 1
  5. The constant C is not reported in the table for space-saving. ***, **, * mean respectively significance at the level of 1%, 5% and 10%