This code implements the test of monotonicity in asset returns of Patton and Timmermann (2010). The monotonic relation (MR) test holds that expected returns are identical or weakly declining under the null hypothesis, while under the alternative it maintains a monotonically increasing relation. The code computes the spread in the estimated expected return between the top and the bottom ranked portfolio, the t-statistic for this spread and the associated p-value. It also reports the p-values from the MR test applied to the decile portfolios, based either on the minimal set of portfolio comparisons or on all possible comparisons (MRall), the p-values associated with the Up and Down tests (based on the sum of up and down moves) and the p-values from Wolak(1989) test and a Bonferroni bound.
Journal of Monetary Economics (2018)
Toda Alexis Akira