EconPapers    
Economics at your fingertips  
 

Recession Prediction Using Yield Curve and Stock Market Liquidity Deviation Measures

Oral Erdoğan, Paul Bennett and Cenktan Ozyildirim

Review of Finance, 2015, vol. 19, issue 1, 407-422

Abstract: This article extends the benchmark Estrella and Hardouvelis term spread approach to recession forecasting by including the stock market macro liquidity deviation factor. We use a probit framework to predict recessions, as defined by the NBER between 1959Q1 and 2011Q4. We find that combining the yield curve parameter with the stock market liquidity deviation significantly improves our ability to predict the onset of a US recession, based both on in-sample and out-of-sample tests. In addition, changes in stock market depth further increase the accuracy of the model. We suggest that economic forecasters and those charged with conducting economic stabilization policy more generally would benefit from monitoring not only the yield curve but also stock market depth and liquidity, and their deviation from one another.

Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

Downloads: (external link)
http://hdl.handle.net/10.1093/rof/rft060 (application/pdf)
Access to full text is restricted to subscribers.

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:oup:revfin:v:19:y:2015:i:1:p:407-422.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

Review of Finance is currently edited by Marcin Kacperczyk

More articles in Review of Finance from European Finance Association Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().

 
Page updated 2024-05-08
Handle: RePEc:oup:revfin:v:19:y:2015:i:1:p:407-422.