The Real-Time Macro Content of Corporate Financial Reports: A Dynamic Factor Model Approach

58 Pages Posted: 7 Jul 2022

See all articles by Ahmed M. Abdalla

Ahmed M. Abdalla

Monash University - Department of Accounting

Jose M. Carabias

London School of Economics & Political Science (LSE) - London School of Economics

Panos N. Patatoukas

Berkeley Haas

Date Written: December 19, 2018

Abstract

We use a standard dynamic factor model to extract new factors based on the real-time flow of accounting data from the corporate financial reports. The extracted accounting factors exploit across-sector comovements in corporate value creation drivers and can be used together with other closely watched economic indicators. We show that our weekly updated accounting factors are incrementally relevant for nowcasting and forecasting major components of economic output in the BEA’s National Income and Product Accounts. Overall, our paper pioneers a new approach to incorporating the continuous flow of accounting data within the context of dynamic factor models.

Keywords: Corporate Financial Reports; Nowcasting; Forecasting; Macro Accounting.

JEL Classification: E01, E32, E60, M41.

Suggested Citation

M. Abdalla, Ahmed and Carabias, Jose M. and Patatoukas, Panos N., The Real-Time Macro Content of Corporate Financial Reports: A Dynamic Factor Model Approach (December 19, 2018). Journal of Monetary Economics, Vol. 118, 2021, Available at SSRN: https://ssrn.com/abstract=4128281

Ahmed M. Abdalla (Contact Author)

Monash University - Department of Accounting ( email )

H3.43, Building H, Level 3
Monash University Caulfiled
Melbourne, VIC 3145
Australia

Jose M. Carabias

London School of Economics & Political Science (LSE) - London School of Economics ( email )

United Kingdom

Panos N. Patatoukas

Berkeley Haas ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

HOME PAGE: http://https://sites.google.com/berkeley.edu/panos

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