The ability of U.S. macroeconomic variables to predict Asian financial market returns

Kae‐Yih Tzeng

International Journal of Finance & Economics, 2023, vol. 28, issue 4, 3529-3551

Abstract: This study conducts an extensive empirical investigation of whether 20 U.S. macroeconomic variables influence Asian financial market returns. The in‐sample results show that certain U.S. macroeconomic variables, such as the commercial paper‐to‐Treasury‐bill spread or the manufacturing Purchasing Managers' Index, possess powerful abilities to predict Asian market returns. The out‐of‐sample results show that other macroeconomic variables, such as change in the inflation rate, also show predictive power. We also use combination methods that pool information from U.S. macroeconomic variables to improve their predictive ability, and find that doing so produces superior out‐of‐sample results. We therefore find that the 20 U.S. macroeconomic variables contain information that can be used to predict Asian market returns.

Date: 2023
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