The Predictive Content of Sectoral Stock Prices : A US-Euro Area Comparison

This paper examines the out‐of‐sample forecast performance of sectoral stock market indicators for real GDP, private consumption and investment growth up to 4 quarters ahead in the US and the Euro Area. Our findings are that the predictive content of sectoral stock market indicators: i) is potentially strong, particularly for the financial sector, and is stronger than that of financial spreads; ii) varies over time, with a substantial improvement after 1999 for the Euro Area; iii) is stronger for investment than for private consumption; and iv) is stronger in the Euro Area than in the United States