IDEAS home Printed from https://ideas.repec.org/a/wly/jforec/v37y2018i4p506-516.html
   My bibliography  Save this article

What does the tail of the distribution of current stock prices tell us about future economic activity?

Author

Listed:
  • José Vicente
  • Gustavo Araujo

Abstract

This paper proposes three leading indicators of economic conditions estimated using current stock returns. The assumption underlying our approach is that current asset prices reflect all the available information about future states of economy. Each of the proposed indicators is related to the tail of the cross†sectional distribution of stock returns. The results show that the leading indicators have strong correlation with future economic conditions and usually make better out†of†sample predictions than two traditional competitors (random walk and the average of previous observations). Furthermore, quantile regressions reveal that the leading indicators have strong connections with low future economic activity.

Suggested Citation

  • José Vicente & Gustavo Araujo, 2018. "What does the tail of the distribution of current stock prices tell us about future economic activity?," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 37(4), pages 506-516, July.
    • Handle: RePEc:wly:jforec:v:37:y:2018:i:4:p:506-516
    DOI: 10.1002/for.2516
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/for.2516
    Download Restriction: no
    File URL: https://libkey.io/10.1002/for.2516?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Serrano, Pedro & Vaello-Sebastià, Antoni & Vich-Llompart, M. Magdalena, 2024. "The international linkages of market risk perception," Journal of Multinational Financial Management, Elsevier, vol. 72(C).
    2. Salisu, Afees A. & Olaniran, Abeeb & Tchankam, Jean Paul, 2022. "Oil tail risk and the tail risk of the US Dollar exchange rates," Energy Economics, Elsevier, vol. 109(C).
    3. Jörg Döpke & Karsten Müller & Lars Tegtmeier, 2023. "Moments of cross‐sectional stock market returns and the German business cycle," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 52(2), July.
    4. Salisu, Afees A. & Adediran, Idris & Omoke, Philip C. & Tchankam, Jean Paul, 2023. "Gold and tail risks," Resources Policy, Elsevier, vol. 80(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:jforec:v:37:y:2018:i:4:p:506-516. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www3.interscience.wiley.com/cgi-bin/jhome/2966 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.