The Predictive Content of Sectoral Stock Prices: A US-Euro Area Comparison

29 Pages Posted: 31 May 2011

See all articles by Magnus Andersson

Magnus Andersson

European Central Bank (ECB)

Antonello D'Agostino

European Stability Mechanism; Central Bank and Financial Services Authority of Ireland - Economic Analysis and Research Department

Gabe de Bondt

European Central Bank (ECB)

Moreno Roma

European Central Bank (ECB)

Date Written: May 13, 2011

Abstract

This paper examines the out‐of‐sample forecast performance of sectoral stock market indicators for real GDP, private consumption and investment growth up to 4 quarters ahead in the US and the Euro Area. Our findings are that the predictive content of sectoral stock market indicators: i) is potentially strong, particularly for the financial sector, and is stronger than that of financial spreads; ii) varies over time, with a substantial improvement after 1999 for the Euro Area; iii) is stronger for investment than for private consumption; and iv) is stronger in the Euro Area than in the United States.

Keywords: forecasting real GDP, consumption and investment, sectoral stock prices, stock market valuation metrics, US, Euro Area

JEL Classification: C53, E37, G12

Suggested Citation

Andersson, Magnus and D'Agostino, Antonello and de Bondt, Gabe and Roma, Moreno, The Predictive Content of Sectoral Stock Prices: A US-Euro Area Comparison (May 13, 2011). ECB Working Paper No. 1343, Available at SSRN: https://ssrn.com/abstract=1840568 or http://dx.doi.org/10.2139/ssrn.1840568

Magnus Andersson (Contact Author)

European Central Bank (ECB) ( email )

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Antonello D'Agostino

European Stability Mechanism ( email )

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Central Bank and Financial Services Authority of Ireland - Economic Analysis and Research Department ( email )

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Gabe De Bondt

European Central Bank (ECB) ( email )

Eurotower
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+44 69 1344 6000 (Fax)

Moreno Roma

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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