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Economic Tracking Portfolios

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  • Owen Lamont

Abstract

An economic tracking portfolio is a portfolio of assets with returns that track an economic variable. Monthly returns on stocks and bonds are useful in forecasting post-war US output, consumption, labor income, inflation, stock returns, bond returns, and Treasury bill returns. These forecasting relationships define portfolios that track market expectations about future economic variables. Using tracking portfolio returns as instruments for future economic variables substantially raises the estimated sensitivity of asset prices to news about future economic variables. Out-of-sample results show that tracking portfolios are useful in forecasting macroeconomic variables and hedging economic risk.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7055.

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Date of creation: Mar 1999
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Publication status: published as Lamont, Owen A. "Economic Tracking Portfolios," Journal of Econometrics, 2001, v105(1,Nov), 161-184.
Handle: RePEc:nbr:nberwo:7055

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