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

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Author Info
Hartmann, Daniel
Kempa, Bernd
Pierdzioch, Christian

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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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Publisher 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
Date of revision: Apr 2007
Handle: RePEc:pra:mprapa:561

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Related research
Keywords: Forecasting stock returns financial and economic crises trading rules

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Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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