Forecasting through the Rear-View Mirror: Data Revisions and Bond Return Predictability

41 Pages Posted: 13 Nov 2012 Last revised: 22 Mar 2014

Eric Ghysels

University of North Carolina Kenan-Flagler Business School; University of North Carolina (UNC) at Chapel Hill - Department of Economics

Casidhe Horan

The Stephen M. Ross School of Business at the University of Michigan

Emanuel Moench

Deutsche Bundesbank

Date Written: March 19, 2014

Abstract

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.

Keywords: return predictability, real-time data, macroeconomic announcements, dynamic factor models

JEL Classification: G10, G12

Suggested Citation

Ghysels, Eric and Horan, Casidhe and Moench, Emanuel, Forecasting through the Rear-View Mirror: Data Revisions and Bond Return Predictability (March 19, 2014). FRB of New York Staff Report No. 581. Available at SSRN: https://ssrn.com/abstract=2175150 or http://dx.doi.org/10.2139/ssrn.2175150

Eric Ghysels

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Gardner Hall, CB 3305
Chapel Hill, NC 27599
United States
919-966-5325 (Phone)
919-966-4986 (Fax)

HOME PAGE: http://www.unc.edu/~eghysels/

Casidhe Horan

The Stephen M. Ross School of Business at the University of Michigan ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Emanuel Moench (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
D-60431 Frankfurt/Main
Germany
+49 69 95662312 (Phone)

Paper statistics

Downloads
396
Rank
58,962
Abstract Views
1,539