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Exploring economic anomalies in the S&P500 index

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  • Parnes, Dror

Abstract

We examine anomalies in the S&P500 index, an equity-based proxy for the U.S. economy, from January 1957 until December 2018. We use the LOcally wEighted Scatterplot Smoothing (LOESS) nonlinear regression model with various smoothing degrees and identify high and low extreme values in the S&P500 index upon contrasting it with nine U.S. macroeconomic indicators. We find that high and low anomalies occur with cyclicality patterns with respect to the production rate, the inflation rate, the U.S. workforce, and the private consumption rate. A sharp distinction between earlier low anomalies and later high anomalies arises with respect to the interest rate and the U.S. trade price balance. Unusual recent high anomalies appear, however, with respect to the U.S. currency, the market sentiment, and the unemployment rate. We detect robust concentration of high economic anomalies in the S&P500 index (42 in the year of 2017 and 74 in the year of 2018) along eight (out of the nine) macroeconomic indicators. This realization can serve as a warning sign for market participants.

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  • Parnes, Dror, 2020. "Exploring economic anomalies in the S&P500 index," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 292-309.
    • Handle: RePEc:eee:quaeco:v:76:y:2020:i:c:p:292-309
    DOI: 10.1016/j.qref.2019.09.012
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    More about this item

    Keywords

    S&P500 Index; Anomalies; U.S. macroeconomic indicators; LOESS;
    All these keywords.

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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