We propose a new predictor-the innovation in the daily return minimum in the U.S.stock market(△MIN^(US))-for predicting international stock market returns.Using monthly data for a wide range of 17 MSCI international ...We propose a new predictor-the innovation in the daily return minimum in the U.S.stock market(△MIN^(US))-for predicting international stock market returns.Using monthly data for a wide range of 17 MSCI international stock markets dur-ing the period spanning over half a century from January 1972 to July 2022,we find that △MIN^(US) have strong predictive power for returns in most international stock markets:△MIN^(US) negatively predicts the next-month stock market returns.The results remain robust after controlling for a number of macroeconomic predictors and con-ducting subsample and panel data analyses,indicating that △MIN^(US) has significant predictive power and it outperforms other variables in international markets.Notably,△MIN^(US) demonstrates excellent predictive power even during the periods driven by financial upheavals(e.g.,Global Financial Crisis and European Sovereign Debt Crisis).Both panel regressions and out-of-sample tests also support the robust predictive performance of △MIN^(US).The predictive power,however,disappears during the non-financial crisis caused by COVID-19 pandemic,which is originated from the health sector rather than the financial sector.The results provide a new perspective on U.S.extreme indicator in stock market return predictability.展开更多
文摘We propose a new predictor-the innovation in the daily return minimum in the U.S.stock market(△MIN^(US))-for predicting international stock market returns.Using monthly data for a wide range of 17 MSCI international stock markets dur-ing the period spanning over half a century from January 1972 to July 2022,we find that △MIN^(US) have strong predictive power for returns in most international stock markets:△MIN^(US) negatively predicts the next-month stock market returns.The results remain robust after controlling for a number of macroeconomic predictors and con-ducting subsample and panel data analyses,indicating that △MIN^(US) has significant predictive power and it outperforms other variables in international markets.Notably,△MIN^(US) demonstrates excellent predictive power even during the periods driven by financial upheavals(e.g.,Global Financial Crisis and European Sovereign Debt Crisis).Both panel regressions and out-of-sample tests also support the robust predictive performance of △MIN^(US).The predictive power,however,disappears during the non-financial crisis caused by COVID-19 pandemic,which is originated from the health sector rather than the financial sector.The results provide a new perspective on U.S.extreme indicator in stock market return predictability.
