An Empirical Analysis of Real Activity and Stock Returns in an Emerging Market

Mansor Ibrahim

Economic Analysis and Policy, 2010, vol. 40, issue 2, 263-271

Abstract: The present paper analyzes the role of stock market returns as a predictor of real output for a fast-growing emerging market, Malaysia. In the analysis, forecasting equations for 1-, 2-, 4-, and 8-quarter forecasting horizons based on autoregressive distributed lags framework are adopted. From the estimation, we find evidence that stock market returns do contain predictive ability at short-forecasting horizons, especially at less than 4-quarter horizons. Estimating the forecasting models recursively, we note reduction of out-of-sample forecasting evaluation statistics, namely the mean absolute errors (MAE) and the mean squared forecast errors (MSFE), from those obtained from the simple autoregressive (AR) model. More importantly, the null hypothesis of equal predictive accuracy between the model with stock returns as a predictor and the AR model is rejected for the 1-quarter and 2-quarter forecasting horizons by the McCraken’s (2007) out-of-sample-F statistics.

Keywords: Stock Return; Real GDP Growth; Out-of-Sample Forecasts; Malaysia (search for similar items in EconPapers)
JEL-codes: C53 E37 (search for similar items in EconPapers)
Date: 2010
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0313592610500286
Full text for ScienceDirect subscribers only

Related works:
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:eee:ecanpo:v:40:y:2010:i:2:p:263-271

Access Statistics for this article

Economic Analysis and Policy is currently edited by Clevo Wilson

More articles in Economic Analysis and Policy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().