The Performance of Economic Tracking Portfolios in an It-Sensitive Stock Market

40 Pages Posted: 1 Mar 2002

See all articles by Juha-Pekka Junttila

Juha-Pekka Junttila

Jyväskylä University School of Business and Economics; Oulu Business Scool

Heli Kinnunen

University of Oulu

Date Written: February 2002

Abstract

In this paper we use an economic tracking portfolio (ETP) approach for forecasting future values of macroeconomic variables in the IT-sensitive Finnish stock market. The results confirm recently obtained conclusions in Lamont (2001), Hayes (2001) and Junttila (2002) that ETPs contain relevant information about macroeconomic variables. According to our results, when compared to the market portfolio, different industry portfolios might forecast the future macroeconomic variables better. The analysis also shows that the control variables may not play such an important role in a closed-economy context when compared to earlier studies using an international asset return data set in the ETP framework. It seems to be more important to consider carefully the choice of base assets and their account. The results also give clear support for the use of industry portfolios in out-of-sample forecasting in the ETP framework. Especially the 'new economy' stock returns (like the IT-return) have clear forecasting power for future inflation and changes in industrial production in the Finnish economy at short horizons.

Keywords: Industry Stock Portfolios, Forecasting, Macroeconomy

JEL Classification: C53, E44, G15

Suggested Citation

Junttila, Juha-Pekka and Kinnunen, Heli, The Performance of Economic Tracking Portfolios in an It-Sensitive Stock Market (February 2002). EFA 2002 Berlin Meetings Discussion Paper. Available at SSRN: https://ssrn.com/abstract=302316 or http://dx.doi.org/10.2139/ssrn.302316

Juha-Pekka Junttila (Contact Author)

Jyväskylä University School of Business and Economics ( email )

University of Jyväskylä
PO Box 35
Jyväskylä, FIN-40014
Finland

Oulu Business Scool ( email )

PO Box 4600
FIN-90014 University of Oulu
Finland
+358-8-553 2916 (Phone)
+358-8-553 2906 (Fax)

Heli Kinnunen

University of Oulu ( email )

P.O. Box 4600
Oulu FIN-90014
Finland

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