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Economic and Financial Crises and the Predictability of U.S. Stock Returns

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  • Hartmann, Daniel
  • Kempa, Bernd
  • Pierdzioch, Christian

Abstract

We argue that the use of publicly available and easily accessible information on economic and financial crises to detect structural breaks in the link between stock returns and macroeconomic predictor variables improves the performance of simple trading rules in real time. In particular, our results suggest that accounting for structural breaks and regime shifts in forecasting regressions caused by economic and financial crises has the potential to increase the out-of-sample predictability of stock returns, the performance of simple trading rules, and the market-timing ability of an investor trading in the U.S. stock market.

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File URL: http://mpra.ub.uni-muenchen.de/2920/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 561.

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Date of creation: Oct 2006
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Handle: RePEc:pra:mprapa:561

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Keywords: Forecasting stock returns; financial and economic crises; trading rules;

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References

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Cited by:
  1. Francesco Battaglia & Mattheos Protopapas, 2012. "Multi–regime models for nonlinear nonstationary time series," Computational Statistics, Springer, vol. 27(2), pages 319-341, June.
  2. Yu-Hau Hu & Shun-Jen Hsueh, 2013. "A Study of yhe Nonlinear Relationships among the U.S. and Asian Stock Markets during Financial Crises," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 134-147, December.
  3. Michael Berlemann & Julia Freese & Sven Knoth, 2012. "Eyes Wide Shut? The U.S. House Market Bubble through the Lense of Statistical Process Control," CESifo Working Paper Series 3962, CESifo Group Munich.
  4. Pierdzioch, Christian & Risse, Marian & Rohloff, Sebastian, 2014. "The international business cycle and gold-price fluctuations," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(2), pages 292-305.
  5. Christian Pierdzioch, 2012. "Macroeconomic Factors and the German Real Estate Market: A Stock-Market-Based Forecasting Experiment," Review of Economics & Finance, Better Advances Press, Canada, vol. 2, pages 87-96, May.

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