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Predicting severe simultaneous bear stock markets using macroeconomic variables as leading indicators

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  • Wu, Shue-Jen
  • Lee, Wei-Ming

Abstract

This paper investigates the predictability of severe simultaneous bear stock markets in 10 industrialized countries. Based on a set of US macroeconomic variables, all of the in-sample and out-of-sample results from probit models with a single macroeconomic variable and with more than one macroeconomic variables confirm that severe simultaneous bear stock markets are indeed predictable. In particular, while the inflation rate is the strongest predictor at longer forecast horizons, the relative long-term government bond yield and the stock return perform best at shorter forecast horizons.

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  • Wu, Shue-Jen & Lee, Wei-Ming, 2015. "Predicting severe simultaneous bear stock markets using macroeconomic variables as leading indicators," Finance Research Letters, Elsevier, vol. 13(C), pages 196-204.
    • Handle: RePEc:eee:finlet:v:13:y:2015:i:c:p:196-204
    DOI: 10.1016/j.frl.2015.01.003
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    4. Rui Menezes & Sonia Bentes, 2016. "Hysteresis and Duration Dependence of Financial Crises in the US: Evidence from 1871-2016," Papers 1610.00259, arXiv.org.
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    8. Ardila, Diego & Sornette, Didier, 2016. "Dating the financial cycle with uncertainty estimates: a wavelet proposition," Finance Research Letters, Elsevier, vol. 19(C), pages 298-304.
    9. Alqaralleh, Huthaifa & Canepa, Alessandra & Chini, Zanetti, 2021. "Financial Contagion During the Covid-19 Pandemic: A Wavelet-Copula-GARCH Approach," Department of Economics and Statistics Cognetti de Martiis. Working Papers 202110, University of Turin.
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    More about this item

    Keywords

    Severe simultaneous bear markets; Macroeconomic variables; Probit model; Predictability;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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