Assessing and combining financial conditions indexes
Abstract: We evaluate the short horizon predictive ability of financial conditions indexes for stock returns and macroeconomic variables. We find reliable predictability only when the sample includes the 2008 financial crisis, and we argue that this result is driven by tailoring the indexes to the crisis and by non-synchronous trading. Financial conditions indexes are based on a variety of constituent variables and aggregation methods, and we discuss a simple procedure for consolidating the growing number of different indexes into a single proxy for financial conditions.
File(s): File format is text/html http://www.federalreserve.gov/pubs/feds/2013/201339/201339abs.html
File(s): File format is application/pdf http://www.federalreserve.gov/pubs/feds/2013/201339/201339pap.pdf
Part of Series: Finance and Economics Discussion Series
Publication Date: 2013