What's Good for Toyota...?
NRG Working Paper No. 06-12
20 Pages Posted: 3 Oct 2006
Date Written: August 2006
Abstract
Since long the auto industry has been a valued source of leading business cycle indicators. While practitioners continue to use data on new car registrations to forecast economic activity, the predictive performance of auto industry related stock returns has deteriorated in the past decades. For the US this can be traced to the advent of Japanese manufacturers. The increased US market penetration by Japanese automakers coincides with a decline in the predictive ability of domestic auto returns. We are, however, able to recover a role for auto returns in business cycle forecasting by employing Japanese data. No such result can be found for European countries. We do conclude, however, that what's good for Toyota, is good for the world economy.
Keywords: Forecasting, Business Cycle, Financial Markets
JEL Classification: E32, E37, E44
Suggested Citation: Suggested Citation
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