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

Henri Nyberg and Harri Pönkä

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

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. Our main interest is on the potential benefits of predicting the signs of the returns jointly, focusing on the predictive power from the U.S. to foreign markets. We introduce a new bivariate probit model that allows for such a contemporaneous predictive linkage from one market to the other. Our in-sample and out-of-sample forecasting results indicate superior predictive performance of the new model over the competing models by statistical measures and market timing performance, suggesting gradual diffusion of predictive information from the U.S. to the other markets.

Keywords: Excess stock return; Directional predictability; Bivariate probit model; Market timing (search for similar items in EconPapers)
JEL-codes: C22 G12 G17 (search for similar items in EconPapers)
Pages: 51
Date: 2015-05-05
New Economics Papers: this item is included in nep-cfn, nep-ecm, nep-for and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://repec.econ.au.dk/repec/creates/rp/15/rp15_20.pdf (application/pdf)

Related works:
Journal Article: International sign predictability of stock returns: The role of the United States (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aah:create:2015-20

Access Statistics for this paper

More papers in CREATES Research Papers from Department of Economics and Business Economics, Aarhus University
Bibliographic data for series maintained by ().