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"Moments of Cross-Sectional Stock Market Returns and the German Business Cycle" - Working Paper von Prof. J?rg D?pke, Karsten Müller, Prof. Lars Tegtmeier

13.08.2020, Wirtschaftswissenschaften und Informationswissenschaften Wirtschaftsingenieurwesen (Schwerpunkt Management) Wirtschaftsingenieurwesen (Master) Wirtschaftsinformatik Wirtschaftsinformatik (Master) Controlling und Management Projektmanagement Betriebswirtschaft Betriebswirtschaft (berufsbegleitend)

Based on monthly data covering the period from 1987 to 2019, we analyse whether cross-sectional moments of stock market returns may provide information about the future position of the German business cycle. We apply in-sample forecasting regressions with and without leading indicators as control variables, pseudo-out-of-sample exercises, Probit models, and Autoregressive Distributed Lag Models. We find in-sample predictive power of the first and third cross-section moments for the future growth of industrial production, even if one controls for well-established leading indicators for the German business cycle. In addition, out-of-sample tests show that these variables reduce the relative Mean Squared Error compared to benchmark models. The results for the second moment are less promising. Also, we do not observe a long-run relation between the moment series and industrial production.

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