International Sign Predictability of Stock Returns : The Role of the United States

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http://hdl.handle.net/10138/303391

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Nyberg , H K & Pönkä , A H M 2016 , ' International Sign Predictability of Stock Returns : The Role of the United States ' , Economic Modelling , vol. 58 , pp. 323–338 . https://doi.org/10.1016/j.econmod.2016.06.013

Title: International Sign Predictability of Stock Returns : The Role of the United States
Author: Nyberg, Henri Kaleva; Pönkä, Antti Harri Miikka
Contributor: University of Helsinki, Department of Political and Economic Studies (2010-2017)
University of Helsinki, Financial and Macroeconometrics
Date: 2016
Language: eng
Number of pages: 16
Belongs to series: Economic Modelling
ISSN: 0264-9993
URI: http://hdl.handle.net/10138/303391
Abstract: We study the directional predictability of monthly excess stock market returns in the U.S. and ten other markets using univariate and bivariate binary response models. We introduce a new bivariate (two-equation) probit model that allows us to examine the benefits of predicting the signs of returns jointly, focusing on the predictive power originating from the U.S. to foreign markets. Our in-sample and out-of-sample forecasting results indicate superior predictive performance of the new model over competing univariate binary response models, and conventional predictive regressions, by statistical measures and market timing performance. This highlights the importance of predictive information from the U.S. to the other markets providing also practical improvement in investors' market timing decisions.
Subject: 511 Economics
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