Economic and Financial Crises and the Predictability of U.S. Stock Returns

Daniel Hartmann, Bernd Kempa and Christian Pierdzioch

MPRA Paper from University Library of Munich, Germany

Abstract: We argue that the use of publicly available and easily accessible information on economic and financial crises to detect structural breaks in the link between stock returns and macroeconomic predictor variables improves the performance of simple trading rules in real time. In particular, our results suggest that accounting for structural breaks and regime shifts in forecasting regressions caused by economic and financial crises has the potential to increase the out-of-sample predictability of stock returns, the performance of simple trading rules, and the market-timing ability of an investor trading in the U.S. stock market.

Keywords: Forecasting stock returns; financial and economic crises; trading rules (search for similar items in EconPapers)
JEL-codes: G11 C53 E44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-ets, nep-for, nep-mac and nep-rmg
Date: 2006-10, Revised 2007-04
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Downloads: (external link)
http://mpra.ub.uni-muenchen.de/561/ orginal version
http://mpra.ub.uni-muenchen.de/2920/ revised version

Related works:
Journal Article: Economic and financial crises and the predictability of U.S. stock returns (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:561

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