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Further evidence on financial information and economic activity forecasts in the United States
Institution:1. Department of Finance, Zhe Jiang University of Finance and Economic, China;2. Griffith Business School, Griffith University, Australia;1. Department of Finance, Parker College of Business, Georgia Southern University, Statesboro, GA 30458, United States;2. U.S. Commodity Futures Trading Commission, 1155 21st Street NW, Washington, DC 20581, United States;1. School of Economics and Management, Beihang University, Beijing 100191, China;2. Laboratory for Low-carbon Intelligent Governance, Beihang University, Beijing 100191, China;3. Department of Finance, Business School, Southern University of Science and Technology, Shenzhen, 518055, China;4. China Export & Credit Insurance Corp, Beijing 100033, China;1. Medical Clinical Affairs, Satellite Healthcare, San Jose, California;2. Clinical & Health Sciences, University of South Australia, Adelaide, South Australia, Australia;3. Division of Nephrology, Department of Medicine, Stanford University School of Medicine, Palo Alto, California;4. National Kidney Foundation, New York, New York;2. School of Medicine, National University of Ireland, Galway, Ireland;3. Griffith University, School of Pharmacy and Medical Science, Gold Coast, Australia;4. Department of Immuno-Oncology, City of Hope, Duarte, CA, USA;5. Faculty of Pharmacy, Ain Shams University, Egypt;6. Indiana University School of Medicine, Indianapolis, IN, USA
Abstract:Our study provides substantially robust evidence for the predictive power of financial variables in forecasting the business cycle at a further step. We select several interesting and representative financial variables and reveal that they can predict significant information regarding future equity premiums as well as future macroeconomic activity, which are proxied by comprehensive fresh macroeconomic variables. The predictive power remains stable in out-of-sample estimations and can generate profits in an active market-timing trading strategy in excess of the historical mean forecast strategy. Cochrane provides one of the core interpretations for such forecasts in the theoretical asset pricing framework.
Keywords:Substantially robust evidence  Predictive power  Future macroeconomic activity  Generate profits  Theoretical asset pricing framework
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