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Forecasting U.S. Recessions Using Over 150 Years of Data: Stock-Market Moments versus Oil-Market Moments

Author

Listed:
  • Elie Bouri

    (Adnan Kassar School of Business, Lebanese American University, Lebanon)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

  • Christian Pierdzioch

    (Department of Economics, Helmut Schmidt University, Holstenhofweg 85, P.O.B. 700822, 22008 Hamburg, Germany.)

  • Onur Polat

    (Department of Public Finance, Bilecik Seyh Edebali University, Bilecik, Turkiye)

Abstract

Using monthly data from 1871 to 2024 and logistic models with shrinkage estimators, we compare the contribution of stock and oil-market moments (returns, volatility, skewness, and kurtosis) to the accuracy of out-of-sample forecasts of U.S. recessions at various forecast horizons, while controling for various standard macroeconomic predictors and the total connectedness indexes of the moments. Adding stock-market moments to the potential predictors improves significantly the accuracy of out-of-sample forecasts at the long forecast horizon, whereas oil-market moments and connectedness indexes do not contribute much. The lagged recession dummy, the term spread, and stock returns are found to be the top predictors of recessions.

Suggested Citation

  • Elie Bouri & Rangan Gupta & Christian Pierdzioch & Onur Polat, 2024. "Forecasting U.S. Recessions Using Over 150 Years of Data: Stock-Market Moments versus Oil-Market Moments," Working Papers 202435, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202435
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Recessions; Stock-market and oil-market moments; Forecasting; Shrinkage estimators; AUC statistics;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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