The Economic Value of Business Cycle Forecasts for Potential Investors – Evidence from Germany

33 Pages Posted: 7 Nov 2017 Last revised: 18 May 2018

See all articles by Lars Tegtmeier

Lars Tegtmeier

University of Applied Sciences Merseburg

Jörg Döpke

University of Applied Sciences Merseburg

Karsten Müller

University of Applied Sciences Merseburg

Date Written: May 15, 2018

Abstract

We evaluate the economic value of business cycle forecasts for potential investors on financial markets as opposed to statistical measures of forecasts accuracy. Taking Germany as an example, and based on annual data ranging from 1990 to 2016 covering 16 institutions and 18 different forecasts, we calculate the value of portfolios that actively react to business cycle forecasts and compare these values with the value of portfolios that are passively managed. We find that actively managed portfolios do not systemically outperform passively managed ones, while statistical measures suggest that forecasts are better than naive ones. Furthermore, statistical and economic measures of forecast quality often correlate negatively across forecasters. One main reason for the difference between the two views on forecast quality is that the economic value of a correct forecast changes during time. We check the robustness of our results by applying several trading rules referring to business cycle forecasts.

Keywords: Macroeconomic Forecasting, Forecast Error Evaluation, Germany, Portfolio

JEL Classification: E32, E37, G11

Suggested Citation

Tegtmeier, Lars and Döpke, Jörg and Müller, Karsten, The Economic Value of Business Cycle Forecasts for Potential Investors – Evidence from Germany (May 15, 2018). Available at SSRN: https://ssrn.com/abstract=3064099 or http://dx.doi.org/10.2139/ssrn.3064099

Lars Tegtmeier (Contact Author)

University of Applied Sciences Merseburg ( email )

Eberhard-Leibnitz-Straße 2
Merseburg, Sachsen-Anhalt 06217
Germany

Jörg Döpke

University of Applied Sciences Merseburg ( email )

Eberhard-Leibnitz-Straße 2
Merseburg, D-06217
Germany

Karsten Müller

University of Applied Sciences Merseburg ( email )

Eberhard-Leibnitz-Str. 2
Merseburg, Sachsen-Anhalt 06217
Germany

HOME PAGE: http://https://www.hs-merseburg.de/aktuelles/

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