Quartely Date GDP growth S&P 500 RETURNS 1/1/1990 2.19 0.42 4/1/1990 1.41 -1.29
ID: 3354992 • Letter: Q
Question
Quartely Date GDP growth S&P 500 RETURNS 1/1/1990 2.19 0.42 4/1/1990 1.41 -1.29 7/1/1990 0.91 1.73 10/1/1990 -0.10 -5.23 1/1/1991 0.52 2.53 4/1/1991 1.45 4.26 7/1/1991 1.21 -0.36 10/1/1991 0.97 1.47 1/1/1992 1.60 2.42 4/1/1992 1.73 -1.09 7/1/1992 1.44 0.37 10/1/1992 1.67 0.78 1/1/1993 0.75 1.40 4/1/1993 1.20 1.20 7/1/1993 1.09 -0.08 10/1/1993 1.85 0.62 1/1/1994 1.46 0.54 4/1/1994 1.85 -1.51 7/1/1994 1.13 -0.11 10/1/1994 1.68 1.35 1/1/1995 0.91 -0.25 4/1/1995 0.79 2.88 7/1/1995 1.33 2.81 10/1/1995 1.20 2.34 1/1/1996 1.19 1.75 4/1/1996 2.11 1.56 7/1/1996 1.20 1.27 10/1/1996 1.56 0.82 1/1/1997 1.38 2.50 4/1/1997 1.77 0.73 7/1/1997 1.62 5.21 10/1/1997 1.10 2.26 1/1/1998 1.15 0.80 4/1/1998 1.17 4.23 7/1/1998 1.67 0.96 10/1/1998 1.94 -3.62 1/1/1999 1.29 6.32 4/1/1999 1.16 1.51 7/1/1999 1.61 2.17 10/1/1999 2.18 -2.26 1/1/2000 1.05 4.53 4/1/2000 2.44 0.66 7/1/2000 0.77 -0.99 10/1/2000 1.10 -0.42 1/1/2001 0.34 -2.81 4/1/2001 1.23 -4.30 7/1/2001 0.01 1.79 10/1/2001 0.58 -5.41 1/1/2002 1.24 3.27 4/1/2002 0.92 -0.02 7/1/2002 0.93 -0.37 10/1/2002 0.60 -6.47 1/1/2003 1.13 2.54 4/1/2003 1.24 -1.22 7/1/2003 2.21 4.63 10/1/2003 1.64 0.73 1/1/2004 1.44 3.67 4/1/2004 1.60 0.43 7/1/2004 1.52 0.43 10/1/2004 1.56 -0.78 1/1/2005 1.98 2.79 4/1/2005 1.24 -0.87 7/1/2005 1.77 0.30 10/1/2005 1.33 1.03 1/1/2006 1.98 0.52 4/1/2006 1.10 1.22 7/1/2006 0.78 -0.64 10/1/2006 1.13 1.68 1/1/2007 1.18 2.00 4/1/2007 1.32 0.06 7/1/2007 1.02 1.88 10/1/2007 0.79 0.51 1/1/2008 -0.12 -1.30 4/1/2008 0.98 -3.48 7/1/2008 0.20 -1.09 10/1/2008 -1.99 -3.10 1/1/2009 -1.15 -8.52 4/1/2009 -0.30 -4.14 7/1/2009 0.30 4.72 10/1/2009 1.26 4.65 1/1/2010 0.78 1.78 4/1/2010 1.40 1.59 7/1/2010 1.13 -4.21 10/1/2010 1.14 3.39 1/1/2011 0.05 3.24 4/1/2011 1.45 1.76 7/1/2011 0.81 -0.13 10/1/2011 1.26 -5.15 1/1/2012 1.19 3.52 4/1/2012 0.92 3.78 7/1/2012 0.66 -1.11 10/1/2012 0.43 1.87 1/1/2013 1.09 -0.34 4/1/2013 0.40 3.19 7/1/2013 1.25 0.78 10/1/2013 1.49 1.53 1/1/2014 0.15 3.15 4/1/2014 1.52 0.43 7/1/2014 1.63 1.53 10/1/2014 0.70 0.20 1/1/2015 0.52 1.43 4/1/2015 1.20 0.15 7/1/2015 0.79 -0.08 10/1/2015 0.44 -2.40 The stock market is said to be a leading indicator for GDP growth. Because the stock market incorporates the expectations of future earnings, a bullish market may predict future economic growth and vice versa. Let Yt be GDP growth and Xt be SP500 returns. Use the data provided to run OLS for the following models 2. a. Yt=0+1Xt+Hz (contemporaneous correlation) b. Yt=0+AXt-1+He (one-quarter leading indicator) AK-1 + 2Xt-2 + , xt-3 + 4Xo-4 + He (four-quarter leading indicator) indicator with GDP inertia) For each model, assess the R-squared and the adjusted R-squared. Which model do vou prefer?Explanation / Answer
a)
The regression equation is
GDP = 1.06 + 0.0790 SP500
Predictor Coef SE Coef T P
Constant 1.05998 0.06318 16.78 0.000
SP500 0.07900 0.02390 3.31 0.001
S = 0.628068 R-Sq = 9.7% R-Sq(adj) = 8.8%
b)
The regression equation is
GDP = 1.07 + 0.0771 SP500
Predictor Coef SE Coef T P
Constant 1.06747 0.06361 16.78 0.000
SP500 0.07706 0.02395 3.22 0.002
S = 0.629291 R-Sq = 9.3% R-Sq(adj) = 8.4%
c)
Regression Analysis: GDP versus X(t-1), X(t-2), X(t-3), X(t-4)
The regression equation is
GDP = 1.08 + 0.0769 X(t-1) + 0.0187 X(t-2) - 0.0162 X(t-3) - 0.0084 X(t-4)
Predictor Coef SE Coef T P
Constant 1.07634 0.07111 15.14 0.000
X(t-1) 0.07687 0.02470 3.11 0.002
X(t-2) 0.01871 0.02474 0.76 0.451
X(t-3) -0.01621 0.02479 -0.65 0.515
X(t-4) -0.00842 0.02525 -0.33 0.740
S = 0.642432 R-Sq = 10.1% R-Sq(adj) = 6.3%
d)
The regression equation is
GDP = 1.08 + 0.0767 X(t-1) + 0.0188 X(t-2) - 0.0172 X(t-3) - 0.0114 X(t-4)
+ 0.0100 X(t-5)
Predictor Coef SE Coef T P
Constant 1.07787 0.07339 14.69 0.000
X(t-1) 0.07671 0.02495 3.07 0.003
X(t-2) 0.01875 0.02491 0.75 0.453
X(t-3) -0.01717 0.02498 -0.69 0.494
X(t-4) -0.01143 0.02563 -0.45 0.657
X(t-5) 0.01001 0.02557 0.39 0.696
S = 0.646552 R-Sq = 10.5% R-Sq(adj) = 5.7%
Based on the R-squared and adjusted R-squared the model a) will be prefer.