Forecasting through the Rear-View Mirror: Data Revisions and Bond Return Predictability
University of North Carolina Kenan-Flagler Business School; University of North Carolina (UNC) at Chapel Hill - Department of Economics
The Stephen M. Ross School of Business at the University of Michigan
Federal Reserve Bank of New York
March 19, 2014
FRB of New York Staff Report No. 581
Macroeconomic data are typically subject to future revisions and released with delay. Predictive return regressions using such data therefore potentially overstate the information set available to investors in real time. We document that data revisions account for a sizable share of in-sample and out-of-sample predictive power for Treasury returns found in macroeconomic data. This is partly explained by the fact that information contained in revisions to prior months' releases is incorporated into bond prices. Survey forecasts available in real time contain information about future revised data that is orthogonal to the real-time data and also helps to predict bond returns.
Number of Pages in PDF File: 41
Keywords: return predictability, real-time data, macroeconomic announcements, dynamic factor models
JEL Classification: G10, G12working papers series
Date posted: November 13, 2012 ; Last revised: March 22, 2014
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