The news in financial asset returns
Gerald Dwyer () and
Cesare Robotti ()
Economic Review, 2004, issue Q 1, 1 - 23
The notion that financial asset returns are predictors of future economic activity is widespread, but detailed analyses provide little support for financial markets’ ability to reveal future economic activity. Even though the evidence on various indicators used by different researchers is mixed, the authors of this article explore the notion that financial markets reveal useful information about future economic activity. ; This article examines and answers two questions: First, what is a good way of extracting information about future economic activity from asset prices? Second, do financial asset returns help predict economic activity over horizons from one month to five years? ; To determine whether news of an asset’s excess return can reveal information about unexpected economic activity, the authors construct a method of extracting the news about future economic activity from returns on financial assets. The authors use linear regressions to relate the unexpected parts of economic activity and the asset’s return to actual economic activity and the actual return on an asset. ; The evidence in the article shows that movements in financial markets do presage developments in the economy. The authors find that movements in the overall stock market and bond returns are the most important financial indicators. It remains to be seen whether those indicators hold up to variations in technique or the passage of time.
Keywords: Financial markets; Economic forecasting (search for similar items in EconPapers)
References: Add references at CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:fip:fedaer:y:2004:i:q1:p:1-23:n:v.89no.1
Ordering information: This journal article can be ordered from
Access Statistics for this article
More articles in Economic Review from Federal Reserve Bank of Atlanta Contact information at EDIRC.
Bibliographic data for series maintained by Meredith Rector ().