International sign predictability of stock returns: The role of the United States
Henri Nyberg and
Harri Pönkä ()
Economic Modelling, 2016, vol. 58, issue C, 323-338
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.
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)
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Working Paper: International Sign Predictability of Stock Returns: The Role of the United States (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:58:y:2016:i:c:p:323-338
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