Due to maintenance, the Publications.gc.ca website may operate intermittently between 5:00 am ET until 9:00 am ET on Sunday, October 22, 2017.
A counterfactual valuation of the stock index as a predictor of crashes: FB3-5/2017-38E-PDF
“Stock market fundamentals would not seem to meaningfully predict returns over ashorter-term horizon—instead, the author shifts focus to severe downside risk (i.e., crashes). The author uses the cointegrating relationship between the log S&P Composite Index and log earnings over 1871 to 2015, combined with smoothed earnings, to first construct a counterfactual valuation benchmark. The price-versus-benchmark residual shows an improved, and economically meaningful, logit estimation of the likelihood of a crash over alternatives such as the dividend yield and price momentum. Rolling out-of-sample estimates highlight the challenges in this task. Nevertheless, the overall results support the common popular belief that a higher stock market valuation in relation to fundamentals entails a higher risk of a crash"--Abstract, p. ii.
|Department/Agency||Bank of Canada.|
|Title||A counterfactual valuation of the stock index as a predictor of crashes|
|Series Title||Bank of Canada staff working paper,|
|Publication Type||Series - View Master Record|
|Electronic Document|| |
Information identified as archived is provided for reference, research or recordkeeping purposes. It is not subject to the Government of Canada Web Standards and has not been altered or updated since it was archived. Please contact the authoring department to request a format other than those available.
We invite you to consult the Frequently Asked Questions page for additional information regarding the Archived Content notice.
Note: The URLs contained in this/these document(s) may no longer be functional
|Number of Pages||ii, 1, 58 p. :|
|Subject Terms||Stock markets, Financial crisis, Forecasting|
- Date modified: