Generating innovations in economic variables
AbstractStock prices should respond only to unpredictable components of economic news ('innovations') in efficient markets. While innovations used in empirical investigations of the economic underpinnings of stock market risk should at least satisfy this basic requirement, this may not guarantee satisfactory research results. Three methods of generating innovations are evaluated for a variety of economic variables. First differencing produces unsatisfactory, serially correlated innovations in general. Both ARIMA and Kalman Filter innovations are unpredictable, but in a further evaluation the component scores from Principal Components Analysis are regressed against economic innovations using PcGets. The results are far less noisy when Kalman Filter innovations are used.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Taylor and Francis Journals in its journal Applied Financial Economics Letters.
Volume (Year): 4 (2008)
Issue (Month): 6 ()
Contact details of provider:
Web page: http://www.tandf.co.uk/journals/titles/17446546.asp
Other versions of this item:
- G1 - Financial Economics - - General Financial Markets
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Vitor Leone, 2011. "From Property Companies to Real Estate Investment Trusts: The Impact of Economic and Property Factors on UK Listed Property Returns," Economic Issues Journal Articles, Economic Issues, vol. 16(1), pages 19-36, March.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
If references are entirely missing, you can add them using this form.