Can stock market forecast the cargo traffic volumes? European evidence
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School of Business |
Bachelor's thesis
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Date
2023
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Mcode
Degree programme
Rahoitus
Language
en
Pages
24+3
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Abstract
Traffic flows are the veins of the economy. Scientific literature indicates that the stock market returns can forecast the shifts in real economic activity. In this study I investigate the mutual relation between the cargo traffic volumes and the stock returns and see whether one could predict the other. The comprehensive and reliable statistical reporting in the European Union allows the application of detailed high-quality datasets. I use quarterly data from Eurostat database, which consists of European cargo traffic on road, rail, sea, inland waters, and air. The dataset spans from 2004 to 2022 and includes data from 28 European countries. I construct a multilinear regression model, and form the regression results from pooled, cross-country instrumental variables estimation. I find that the leading stock returns are a highly significant factor to predict the cargo volume growth rate excluding road cargo, whereas changing the variables other way around, the stock returns cannot be predicted with the leading cargo volume growth rate. The significance of the leading stock returns holds true even after controlling outliers and the effects of various macroeconomic variables, amongst them the GDP growth rate, the employment growth rate, and the leading government bond yields. I also perform Granger causality test for each country to confirm the regression results and to test the direction of the causality. The Granger-causality of the stock returns predicting the cargo volumes is highly significant in the majority of the countries. I also observe some country outliers where the relation does not exist and discuss, what could cause the differences between the countries. In addition, I run regressions with chosen industrial indices to see if some industries’ stock returns could predict the cargo volume growth rate better than the others.Description
Thesis advisor
Keloharju, MattiKeywords
macroeconimic forecasting, stock market returns, cargo volumes, Europe