IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

The Predictive Role of Stock Market Return for Real Activity in Thailand

  • Jiranyakul, Komain

Stock market return is one of financial variables that contain information to forecast real activity such as industrial production and real GDP growth. However, it is still controversial that stock market return can have a predictive content on real activity. This paper attempts to investigate the ability of stock market return to predict industrial production growth (or real activity) in Thailand, which is an emerging market economy. The standard causality test and the equal forecast evaluation of nested models are employed. For the purpose of forecasting, the data are divided into two periods: the data for the in-sample and the out-of-sample periods. The test of equal forecasting ability is also used. Using monthly data from January 1993 to December 2011, it is found that the model augmented with stock return variable outperforms the benchmark model in the forecast horizon of two months. The results seem to support the notion that stock market return is a predictor of industrial output growth in the short run. Moreover, the standard Granger causality test using the in-sample data also supports this notion. The findings offers a useful insight to investors, financial managers and policymakers on the role of stock market return in forecasting real economic activity. Specifically, a change in stock market return is a signal for revising investment decision by investors and portfolio managers.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://mpra.ub.uni-muenchen.de/45670/1/MPRA_paper_45670.pdf
File Function: original version
Download Restriction: no

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 45670.

as
in new window

Length:
Date of creation: Dec 2012
Date of revision:
Handle: RePEc:pra:mprapa:45670
Contact details of provider: Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Fama, Eugene F, 1981. "Stock Returns, Real Activity, Inflation, and Money," American Economic Review, American Economic Association, vol. 71(4), pages 545-65, September.
  2. Robert J. Barro, 1989. "The Stock Market and Investment," NBER Working Papers 2925, National Bureau of Economic Research, Inc.
  3. James H. Stock & Mark W.Watson, 2003. "Forecasting Output and Inflation: The Role of Asset Prices," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 788-829, September.
  4. McCracken, Michael W., 2007. "Asymptotics for out of sample tests of Granger causality," Journal of Econometrics, Elsevier, vol. 140(2), pages 719-752, October.
  5. Jay Choi, Jongmoo & Hauser, Shmuel & Kopecky, Kenneth J., 1999. "Does the stock market predict real activity? Time series evidence from the G-7 countries," Journal of Banking & Finance, Elsevier, vol. 23(12), pages 1771-1792, December.
  6. Gallinger, George W, 1994. "Causality Tests of the Real Stock Return-Real Activity Hypothesis," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 17(2), pages 271-88, Summer.
  7. Arturo Estrella & Frederic S. Mishkin, 1998. "Predicting U.S. Recessions: Financial Variables As Leading Indicators," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 45-61, February.
  8. Panopoulou, Ekaterini, 2007. "Predictive financial models of the euro area: A new evaluation test," International Journal of Forecasting, Elsevier, vol. 23(4), pages 695-705.
  9. Dumas, Bernard & Harvey, Campbell R. & Ruiz, Pierre, 2003. "Are correlations of stock returns justified by subsequent changes in national outputs?," Journal of International Money and Finance, Elsevier, vol. 22(6), pages 777-811, November.
  10. Canova, Fabio & De Nicolo', Gianni, 1995. "Stock returns and real activity: A structural approach," European Economic Review, Elsevier, vol. 39(5), pages 981-1015, May.
  11. repec:eap:articl:v:40:y:2010:i:2:p:263-271 is not listed on IDEAS
  12. Fama, Eugene F, 1990. " Stock Returns, Expected Returns, and Real Activity," Journal of Finance, American Finance Association, vol. 45(4), pages 1089-1108, September.
  13. Kuosmanen, Petri & Vataja, Juuso, 2011. "The role of stock markets vs. the term spread in forecasting macrovariables in Finland," The Quarterly Review of Economics and Finance, Elsevier, vol. 51(2), pages 124-132, May.
  14. Tsouma, Ekaterini, 2009. "Stock returns and economic activity in mature and emerging markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(2), pages 668-685, May.
  15. Kaul, Gautam, 1987. "Stock returns and inflation : The role of the monetary sector," Journal of Financial Economics, Elsevier, vol. 18(2), pages 253-276, June.
  16. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
  17. J. Bradford De Long & Lawrence H. Summers, 1990. "Equipment Investment and Economic Growth," NBER Working Papers 3515, National Bureau of Economic Research, Inc.
  18. Hassapis, Christis & Kalyvitis, Sarantis, 2002. "Investigating the links between growth and real stock price changes with empirical evidence from the G-7 economies," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(3), pages 543-575.
  19. Paolo Mauro, 2000. "Stock Returns and Output Growth in Emerging and Advanced Economies," IMF Working Papers 00/89, International Monetary Fund.
  20. Anthony Aylward & Jack Glen, 2000. "Some international evidence on stock prices as leading indicators of economic activity," Applied Financial Economics, Taylor & Francis Journals, vol. 10(1), pages 1-14.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:45670. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.