Nowcasting Business Cycle Turning Points with Stock Networks and Machine Learning
Author | : |
Publisher | : |
Total Pages | : |
Release | : 2020 |
ISBN-10 | : 9289944110 |
ISBN-13 | : 9789289944113 |
Rating | : 4/5 (113 Downloads) |
Download or read book Nowcasting Business Cycle Turning Points with Stock Networks and Machine Learning written by and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a granular framework that makes use of advanced statistical methods to approximate developments in economy-wide expected corporate earnings. In particular, we evaluate the dynamic network structure of stock returns in the United States as a proxy for the transmission of shocks through the economy and identify node positions (firms) whose connectedness provides a signal for economic growth. The nowcasting exercise, with both the in-sample and the out-of-sample consistent feature selection, highlights which firms are contemporaneously exposed to aggregate downturns and provides a more complete narrative than is usually provided by more aggregate data. The two-state model for predicting periods of negative growth can remarkably well predict future states by using information derived from the node-positions of manufacturing, transportation and financial (particularly insurance) firms. The three-states model, which identifies high, low and negative growth, successfully predicts economic regimes by making use of information from the financial, insurance, and retail sectors.