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The predictive power of cyclical consumption for stock market returns in the Nordic countries
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School of Business |
Bachelor's thesis
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en
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20 + 5
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In this paper, I show that cyclical deviations from the long-term growth trend of consumption give useful information on future stock market returns in the Nordic countries. In-sample predictive regressions show significant negative correlations between the cyclical component of consumption and future returns across all Nordic markets. However, one-quarter-ahead out-of-sample tests suggest the cyclical consumption model outperforms a historical average forecast only in Finland. The in-sample results are economically sizable and robust to a number of alternative detrending methods.