News in Financial Asset Returns: A Reprint from th

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News in Financial Asset Returns: A Reprint from the “Economic Review”

The notion that financial asset returns (FAR) are

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By Gerald P. Dwyer, Jr. (au); Cesare Robotti (au)
Year: 2004
Pages: 23
Binding Paperback

Product Code: 1422319938

Description

The notion that financial asset returns (FAR) are predictors of future economic activity (FEA) is widespread, but detailed analyses provide little support for financial markets’ ability to reveal FEA. This article explores the notion that FAR reveal useful info. about FEA, & examines & answers two questions: (1) What is a good way of extracting info. about FEA from asset prices? (2) Do FAR help predict FEA over horizons from one month to five years? The authors construct a method of extracting the news about FEA from FAR. They use linear regressions to relate the unexpected parts of FEA & the asset’s return to actual economic activity & the actual FAR. Movements in financial markets do presage developments in the economy. Ill.

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