 International sign predictability of stock returns: The role of the United StatesEconomic Modelling, 2016, vol. 58, issue C, 323-338 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. Keywords: Excess stock return; Directional predictability; Bivariate probit model; Market timing (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:58:y:2016:i:c:p:323-338 DOI: 10.1016/j.econmod.2016.06.013 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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