nep-for New Economics Papers
on Forecasting
Issue of 2006‒11‒12
three papers chosen by
Rob J Hyndman
Monash University

  1. Economic and Financial Crises and the Predictability of U.S. Stock Returns By Hartmann, Daniel; Kempa, Bernd; Pierdzioch, Christian
  2. Nonlinear Links between Stock Returns and Exchange Rate Movements By Hartmann, Daniel; Pierdzioch, Christian
  3. Can We Predict GDP Through Examining the Past Values of Money? Empirical Evidence from an Asian Tiger By Feridun, Mete

  1. By: Hartmann, Daniel; Kempa, Bernd; Pierdzioch, Christian
    Abstract: We argue that the use of publicly available and easily accessible information on economic and financial crises to detect structural breaks in the link between stock returns and macroeconomic predictor variables improves the performance of simple trading rules in real time. In particular, our results suggest that accounting for structural breaks and regime shifts in forecasting regressions caused by economic and financial crises has the potential to increase the out-of-sample predictability of stock returns, the performance of simple trading rules, and the market-timing ability of an investor trading in the U.S. stock market.
    Keywords: Forecasting stock returns; financial and economic crises; trading rules
    JEL: C53 G11 E44
    Date: 2006–10
  2. By: Hartmann, Daniel; Pierdzioch, Christian
    Abstract: Empirical evidence suggests that the link between exchange rate movements and stock returns may be nonlinear. This evidence could reflect fundamental economic effects like, for example, transaction costs in international goods market arbitrage. It could also reflect market inefficiencies if investors could exploit the nonlinearity to systematically improve the performance of simple trading rules. Using monthly data for major North-American and European industrial countries for the period 1973-2006, we found that it would have been difficult for an investor to use information on nonlinearities to improve the performance of a simple trading rule based on out-of-sample forecasts of stock returns.
    Keywords: Stock returns; exchange rate movements; nonlinearities
    JEL: C53 F37 E44
    Date: 2006–09
  3. By: Feridun, Mete
    Abstract: The paper aims at establishing whether the fluctuations of money help predict future fluctuations of income, that are not already predictable on the basis of fluctuations of income itself or other readily observable variables. For this purpose vector autoregression (VAR) modelling is used to test whether changes in money supply (M2) has any deterministic or predictive content for movements in Income (GDP). The analysis is performed using quarterly macroeconomic data from Singapore spanning the period between 1980 and 2001. The results suggest that money (M2) and interest rates have information content for future movements in real GDP beyond that contained in past values of GDP itself. This relationship only establishes itself with a fairly long lag. The finding suggests the possibility of making use of the money-income relationship for forecasting purposes.
    Keywords: Vector autoregression (VAR); cointegration; causality
    JEL: E30
    Date: 2005–07

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