Do Stock Market Returns Predict Changes to Output? Evidence from a Nonlinear Panel Data Model
AbstractRecent empirical work suggests a predictive relationship between stock returns and output growth. We employ quarterly data from a panel of 27 countries to test whether stock returns as useful in predicting growth. Unlike previous research, our approach allows for the possible non-linear effect of recessions on the growth-return relationship. There is strong evidence to suggest that a linear model would be misspecified and provide potentially misleading inference. Using a switching regression approach, we find evidence that returns are most useful in predicting growth when the economy is in recession.
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Bibliographic InfoPaper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 868.
Length: 25 pages
Date of creation: 2003
Date of revision:
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Panel data; current depth of recession; stock returns;
Other versions of this item:
- Ólan T. Henry & Nilss Olekalns & Jonathan Thong, 2004. "Do stock market returns predict changes to output? Evidence from a nonlinear panel data model," Empirical Economics, Springer, vol. 29(3), pages 527-540, 09.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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