Economics at your fingertips  

Generating innovations in economic variables

Vitor Leone and Lawrence Leger

Applied Financial Economics Letters, 2008, vol. 4, issue 6, 409-415

Abstract: Stock prices should respond only to unpredictable components of economic news ('innovations') in efficient markets. While innovations used in empirical investigations of the economic underpinnings of stock market risk should at least satisfy this basic requirement, this may not guarantee satisfactory research results. Three methods of generating innovations are evaluated for a variety of economic variables. First differencing produces unsatisfactory, serially correlated innovations in general. Both ARIMA and Kalman Filter innovations are unpredictable, but in a further evaluation the component scores from Principal Components Analysis are regressed against economic innovations using PcGets. The results are far less noisy when Kalman Filter innovations are used.

Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link) ... 40C6AD35DC6213A474B5 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Generating Innovations in Economic Variables (2007) Downloads
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:

Ordering information: This journal article can be ordered from

Access Statistics for this article

Applied Financial Economics Letters is currently edited by Mark Taylor

More articles in Applied Financial Economics Letters from Taylor and Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().

Page updated 2019-04-22
Handle: RePEc:taf:apfelt:v:4:y:2008:i:6:p:409-415