Are the dynamic linkages between the macroeconomy and asset prices time-varying?

Journal of Economics and Business

Volumn 58, Issue 5-6, 2006, Pages 480-518

  Guidolin, Massimo ^a   Ono, Sadayuki ^b  

^a FEDERAL RESERVE BANK OF ST LOUIS   (United States)

^b UNIVERSITY OF YORK   (United Kingdom)

Author keywords

Multivariate regime switching; Predictability; Predictive density tests; Sharpe ratios

Indexed keywords

EID: 33748056083     PISSN: 01486195     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.jeconbus.2006.06.009     Document Type: Article

References (64)

1. Ang A., and Bekaert G. International asset allocation with regime shifts. Review of Financial Studies 15 (2002) 1137-1187
2. Ang A., and Bekaert G. Regime switches in interest rates. Journal of Business and Economic Statistics 20 (2002) 163-182
3. Ang A., and Piazzesi M. A no-arbitrage vector autoregression of term structure dynamics with macroeconomic and latent variables. Journal of Monetary Economics 50 (2003) 745-787
4. Balvers R., Cosimano T., and Mcdonald B. Predicting stock returns in an efficient market. Journal of Finance 45 (1990) 1109-1128
5. Bekaert G., and Hodrick R. Characterizing predictable components in excess returns on equity and foreign exchange markets. Journal of Finance 47 (1992) 467-509
6. Berkowitz J. Testing density forecasts with applications to risk management. Journal of Business and Economic Statistics 19 (2001) 465-474
7. Bernanke B. Nonmonetary effects of the financial crisis in the propagation of the Great Depression. American Economic Review 73 (1983) 257-276
8. Bernanke B., and Blinder A. The federal funds rate and the channels of monetary transmission. American Economic Review 82 (1992) 901-921
9. Bossaerts P., and Hillion P. Implementing statistical criteria to select return forecasting models: What do we learn?. Review of Financial Studies 12 (1999) 405-428
10. Brandt M. Estimating portfolio and consumption choice: A conditional Euler equations approach. Journal of Finance 54 (1999) 1609-1645
11. Bredin D., and Hyde S. Regime changes in the relationship between stock returns and the macroeconomy (2005) [mimeo]
12. Campbell J. Stock returns and the term structure. Journal of Financial Economics 18 (1987) 373-399
13. Canova F., and De Nicolo G. Stock returns, term structure, inflation and real activity: An international perspective. Macroeconomic Dynamics 4 (2000) 343-372
14. Chan L., Karceski J., and Lakonishok J. The risk and return from factors. Journal of Financial and Quantitative Analysis 33 (1998) 159-188
15. Cutler D., Poterba J., and Summers L. What moves stock prices?. Journal of Portfolio Management 15 (1989) 4-12
16. Davies R. Hypothesis testing when a nuisance parameter is present only under the alternative. Biometrika 64 (1977) 247-254
17. Davis P., and Fagan G. Are financial spreads useful indicators of future inflation and output growth in EU countries?. Journal of Applied Econometrics 12 (1997) 701-714
18. Dempster A., Laird M., and Rubin D. Maximum likelihood from incomplete data via the EM algorithm. Journal of the Royal Statistical Society B39 (1977) 1-22
19. Diebold F., Gunther T., and Tay A. Evaluating density forecasts. International Economic Review 39 (1998) 863-883
20. Diebold F., and Mariano R. Comparing predictive accuracy. Journal of Business and Economic Statistics 13 (1995) 253-263
21. Du D. Monetary policy, stock returns and inflation. Journal of Economics and Business 58 (2006) 36-54
22. Emery K. The information content of the paper-bill spread. Journal of Economics and Business 48 (1996) 1-10
23. Estrella A., and Hardouvelis G. The term structure as a predictor of real economic activity. Journal of Finance 46 (1991) 555-576
24. Estrella A., Rodrigues A., and Schich S. How stable is the predictive power of the yield curve? Evidence from Germany and the United States. Review of Economics and Statistics 85 (2003) 555-566
25. Fama E., and French K. Dividend yields and expected stock returns. Journal of Financial Economics 19 (1988) 3-29
26. Fama E., and French K. Business conditions and expected returns on stocks and bonds. Journal of Financial Economics 25 (1989) 23-49
27. Fama E., and French K. Common risk factors in the returns on stocks and bonds. Journal of Financial Economics 33 (1993) 3-36
28. Fama E., and Schwert W. Asset returns and inflation. Journal of Financial Economics 5 (1977) 115-146
29. Fenton V., and Gallant R. Qualitative and asymptotic performance of SNP density estimation. Journal of Econometrics 74 (1996) 77-118
30. Fischer S., and Merton R. Macroeconomics and finance: The role of the stock market. Carnegie-Rochester Conference Series on Public Policy 21 (1984) 57-108
31. Flannery M., and Protopapadakis A. Macroeconomic factors do influence aggregate stock returns. Review of Financial Studies 15 (2002) 751-782
32. Garcia R. Asymptotic null distribution of the likelihood ratio test in Markov switching models. International Economic Review 39 (1998) 763-788
33. Giacomini R., and White H. Tests of conditional predictive ability (2004) [mimeo, UCLA and UCSD]
34. Goyal A., and Welch I. Predicting the equity premium with dividend ratios. Management Science 49 (2003) 639-654
35. Gray S. Modeling the conditional distribution of interest rates as a regime-switching process. Journal of Financial Economics 42 (1996) 27-62
36. Guidolin M., and Ono S. Are the dynamic linkages between the macroeconomy and asset prices time-varying? (2005), Federal Reserve Bank of St. Louis and University of York [mimeo]
37. Guidolin M., and Timmermann A. Strategic asset allocation under regime switching (2004), Federal Reserve Bank of St. Louis and UCSD [mimeo]
38. Guidolin M., and Timmermann A. Economic implications of bull and bear regimes in UK stock and bond returns. Economic Journal 115 (2005) 111-143
39. Guidolin M., and Timmermann A. Optimal forecast combination weights under regime shifts: An application to US interest rates (2005), Federal Reserve Bank of St. Louis and UCSD [mimeo]
40. Guidolin M., and Timmermann A. An econometric model of nonlinear dynamics in the joint distribution of stock and bond returns. Journal of Applied Econometrics 21 (2006) 1-22
41. Hamilton J. A new approach to the economic analysis of nonstationary time series and the business cycle. Econometrica 57 (1989) 357-384
42. Hamilton J. Estimation, inference, and forecasting of time series subject to changes in regime. In: Maddala G., Rao C., and Vinod H. (Eds). Handbook of statistics Vol. 11 (1993), North-Holland, Amsterdam
43. Hamilton J., and Susmel R. Autoregressive conditional heteroskedasticity and changes in regime. Journal of Econometrics 64 (1994) 307-333
44. Hardouvelis G. Macroeconomic information and stock prices. Journal of Economics and Business 39 (1987) 131-140
45. Homa K., and Jaffee D. The supply of money and common stock prices. Journal of Finance 26 (1971) 1045-1066
46. Jaditz T., Riddick L., and Sayers C. Multivariate nonlinear forecasting: Using financial information to forecast the real sector. Macroeconomic Dynamics 2 (1998) 369-382
47. James C., Koreisha S., and Partch M. A VARMA analysis of casual relations among stock returns, real output, and nominal interest rates. Journal of Finance 40 (1985) 1375-1384
48. Kaul G. Stock returns and inflation: The role of the monetary sector. Journal of Financial Economics 18 (1987) 253-276
49. Krolzig H.-M. Markov-switching vector autoregressions (1997), Springer-Verlag, Berlin
50. Lee B.-S. Causal relations among stock returns, interest rates, real activity, and inflation. Journal of Finance 47 (1992) 1591-1603
51. Leroux B. Maximum likelihood estimation for hidden Markov models. Stochastic Processes and their Applications 40 (1992) 127-143
52. Neely C., and Weller P. Predictability in international asset returns: Reexamination. Journal of Financial and Quantitative Analysis 35 (2000) 601-620
53. Pesaran H., and Timmermann A. Predictability of stock returns: Robustness and economic significance. Journal of Finance 50 (1995) 1201-1228
54. Plosser C., and Rouwenhorst G. International term structures and real economic growth. Journal of Monetary Economics 33 (1994) 133-156
55. Rapach D. Macro shocks and real stock prices. Journal of Economics and Business 53 (2001) 5-26
56. Rapach D., and Wohar M. In-sample vs. out-of-sample tests of stock return predictability in the context of data mining. Journal of Empirical Finance 13 (2006) 231-247
57. Rapach D., Wohar M., and Rangvid J. Macro variables and international stock return predictability. International Journal of Forecasting 21 (2005) 137-166
58. Roeder K., and Wasserman L. Practical Bayesian density estimation using mixtures of normals. Journal of the American Statistical Association 92 (1997) 367-377
59. Sola M., and Driffill J. Testing the term structure of interest rates using a stationary vector autoregression with regime switching. Journal of Economic Dynamics and Control 18 (1994) 601-628
60. Stock J., and Watson M. Has the business cycle changed and why?. NBER macroeconomics annual (2002), MIT Press
61. Stock J., and Watson M. Forecasting output and inflation: The role of asset prices. Journal of Economic Literature 41 (2003) 788-829
62. Turner C., Starz R., and Nelson C. A Markov model of heteroskedasticity, risk, and learning in the stock market. Journal of Financial Economics 25 (1989) 3-22
63. Wickens M., and Flavin T. Macroeconomic influences and optimal asset allocation (2001), University of York [mimeo]
64. Wolfe, J. (1971). A Monte Carlo study of the sampling distribution of the likelihood ratio for mixture of multinormal distributions. San Diego, NITS Research Laboratory working paper.