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An Empirical Analysis of Real Activity and Stock Returns in an Emerging Market

Author

Listed:
  • Mansor H. Ibrahim

    (Department of Economics, Universiti Putra Malaysia)

Abstract

The present paper analyzes the role of stock market returns as a predictor of real output for a fast-growing emerging market, Malaysia. In the analysis, forecasting equations for 1-, 2-, 4-, and 8-quarter forecasting horizons based on autoregressive distributed lags framework are adopted. From the estimation, we find evidence that stock market returns do contain predictive ability at short-forecasting horizons, especially at less than 4-quarter horizons. Estimating the forecasting models recursively, we note reduction of out-of-sample forecasting evaluation statistics, namely the mean absolute errors (MAE) and the mean squared forecast errors (MSFE), from those obtained from the simple autoregressive (AR) model. More importantly, the null hypothesis of equal predictive accuracy between the model with stock returns as a predictor and the AR model is rejected for the 1-quarter and 2-quarter forecasting horizons by the McCraken’s (2007) out-of-sample-F statistics.

Suggested Citation

  • Mansor H. Ibrahim, 2010. "An Empirical Analysis of Real Activity and Stock Returns in an Emerging Market," Economic Analysis and Policy, Elsevier, vol. 40(2), pages 263-271, September.
    • Handle: RePEc:eee:ecanpo:v:40:y:2010:i:2:p:263-271
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    Citations

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    Cited by:

    1. Komain Jiranyakul, 2013. "The Predictive Role of Stock Market Return for Real Activity in Thailand," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 3(3), pages 317-328.
    2. Kateřina Krchnivá, 2016. "Do Stock Markets Have Any Impact on Real Economic Activity?," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 64(1), pages 283-290.
    3. Godfrey Akileng & Abbot Anthony Ogwang & Charles Ssendyona, 2018. "Determinants of performance of securities exchanges in East Africa," Journal of Finance and Investment Analysis, SCIENPRESS Ltd, vol. 7(3), pages 1-3.
    4. Li, Xiao-Lin & Yan, Jing & Wei, Xiaohui, 2021. "Dynamic connectedness among monetary policy cycle, financial cycle and business cycle in China," Economic Analysis and Policy, Elsevier, vol. 69(C), pages 640-652.
    5. Komain Jiranyakul, 2013. "The Predictive Role of Stock Market Return for Real Activity in Thailand," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 3(3), pages 317-328, March.
    6. Kee Tuan Teng & Siew Hwa Yen & Soo Y. Chua & Hooi Hooi Lean, 2016. "Time-Varying Linkages of Economic Activities in China and the Stock Markets in ASEAN-5," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 10(2), June.
    7. Kee Tuan Teng & Siew Hwa Yen & Soo Y. Chua, 2013. "The Synchronisation of ASEAN-5 Stock Markets with the Growth Rate Cycles of Selected Emerging and Developed Economies," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 7(1), pages 1-28, February.

    More about this item

    Keywords

    Stock Return; Real GDP Growth; Out-of-Sample Forecasts; Malaysia;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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