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The predictive content of sectoral stock prices: a US-euro area comparison

Author

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  • Andersson, Magnus
  • D'Agostino, Antonello
  • de Bondt, Gabe
  • Roma, Moreno

Abstract

This paper examines the out-of-sample forecast performance of sectoral stock market indicators for real GDP, private consumption and investment growth up to 4 quarters ahead in the US and the euro area. Our findings are that the predictive content of sectoral stock market indicators: i) is potentially strong, particularly for the financial sector, and is stronger than that of financial spreads; ii) varies over time, with a substantial improvement after 1999 for the euro area; iii) is stronger for investment than for private consumption; and iv) is stronger in the euro area than in the United States. JEL Classification: C53, E37, G12

Suggested Citation

  • Andersson, Magnus & D'Agostino, Antonello & de Bondt, Gabe & Roma, Moreno, 2011. "The predictive content of sectoral stock prices: a US-euro area comparison," Working Paper Series 1343, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20111343
    Note: 568808
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp1343.pdf
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    References listed on IDEAS

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    1. Bianca De Paoli & Pawel Zabczyk, 2013. "Cyclical Risk Aversion, Precautionary Saving, and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(1), pages 1-36, February.
    2. Demirguc-Kunt, Ash & Levine, Ross, 1996. "Stock Markets, Corporate Finance, and Economic Growth: An Overview," The World Bank Economic Review, World Bank, vol. 10(2), pages 223-239, May.
    3. Gabe de Bondt, 2004. "The balance sheet channel of monetary policy: first empirical evidence for the euro area corporate bond market," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(3), pages 219-228.
    4. Gabe de Bondt, 2011. "Equity wealth effects: fundamental or bubble-driven?," Applied Economics Letters, Taylor & Francis Journals, vol. 18(7), pages 601-605.
    5. Gabe de Bondt, 2009. "Predictive content of the stock market for output revisited," Applied Economics Letters, Taylor & Francis Journals, vol. 16(13), pages 1289-1294.
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    Cited by:

    1. Dison, Will & Theodoridis, Konstantinos, 2017. "Do macro shocks matter for equities?," Bank of England working papers 692, Bank of England.
    2. Granziera, Eleonora & Hubrich, Kirstin & Moon, Hyungsik Roger, 2014. "A predictability test for a small number of nested models," Journal of Econometrics, Elsevier, vol. 182(1), pages 174-185.

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    More about this item

    Keywords

    consumption and investment; euro area; forecasting real GDP; sectoral stock prices; stock market valuation metrics; US;
    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
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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