Real-time Economic Data and Future T-note Returns

Posted in Bonds

 

What pitfalls face forecasters trying to predict financial markets with economic data series? In their November 2012 preliminary paper entitled “Forecasting through the Rear-View Mirror: Data Revisions and Bond Return Predictability”, Eric Ghysels, Casidhe Horan and Emanuel Moench examine the predictive power of economic data to predict annual returns for U.S. Treasury notes (T-note) with constant maturities of two, three, four and five years. They focus on the effects of publication delays and use of as-released (real-time) versus revised data. They consider a set of 68 monthly economic variables for which initial release (as well as revised) values and release dates are available since the early 1980s. Using annual T-note returns and both as-released and revised data for these 68 economic variables (such as industrial production, employment, housing indicators, personal income, price indexes and money stock) from ArchivaL Federal Reserve Economic Data) during March 1982 through December 2011, they find that: (more…)

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