Economic Tracking Portfolios

Owen Lamont

No 7055, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: An economic tracking portfolio is a portfolio of assets with returns that track an economic variable. Monthly returns on stocks and bonds are useful in forecasting post-war US output, consumption, labor income, inflation, stock returns, bond returns, and Treasury bill returns. These forecasting relationships define portfolios that track market expectations about future economic variables. Using tracking portfolio returns as instruments for future economic variables substantially raises the estimated sensitivity of asset prices to news about future economic variables. Out-of-sample results show that tracking portfolios are useful in forecasting macroeconomic variables and hedging economic risk.

JEL-codes: E17 E44 (search for similar items in EconPapers)
Date: 1999-03
New Economics Papers: this item is included in nep-fin
Note: AP ME
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Citations: View citations in EconPapers (6)

Published as Lamont, Owen A. "Economic Tracking Portfolios," Journal of Econometrics, 2001, v105(1,Nov), 161-184.

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