Are stock returns a leading indicator for real macroeconomic developments?
AbstractI examine whether or not returns on stock markets are a leading indicator for real macroeconomic developments in Austria, Japan and the USA. Further I deal with the concept of stock market efficiency, the question whether or not information from real and financial sectors of the economy is consistently priced on stock markets. This would not be the case if past macroeconomic developments could be used to improve forecasts of subsequent stock returns. Time series models are used to investigate the respective long-run relations between stock prices and other macroeconomic variables as well as short-term dynamics. I conclude that none of the markets under study is efficient in the above-mentioned strict sense. Only U.S. stock returns lead private consumption and, rather weakly, retail sales growth.
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Bibliographic InfoPaper provided by Department of Economics, Johannes Kepler University Linz, Austria in its series Economics working papers with number 2002-07.
Date of creation: Jul 2002
Date of revision:
Stock returns; stock market efficiency; leading indicators; macroeconomic variables; vector error correction models;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-07-21 (All new papers)
- NEP-FIN-2002-07-21 (Finance)
- NEP-MAC-2002-07-21 (Macroeconomics)
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