An Empirical Study of the Relationship Between Stock Market Price Movements and Macro Financial Conditions, 2001-2013
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Since the early 90's, a number of financial condition indexes have been developed to determine future movementsin the non-financial sectors of the economy. In this study, I use the Kansas City Federal Reserve's index of financial Stress (KCFSI) to study the relationship between market and sector price movements and macro financial conditions. The periods of analysis are :(1)2001-2012), (2) 2003-2007,(3) 2009-2012). The long run period includes two recessions and two sustained periods of economic growth. The two short run periods represent economic rebound periods after the recessions. Using uni-variate regression models regress KCFSI on Spy, the S&P 500 ETF, as well as 10 S&P sector ETF's. Monthly data is used in the regressions. Since increases in KCFSI indicate greater financial stress, I will test the hypothesis that an inverse relationship exists between KCFSI and the market price indexes i.e., the slope coefficient b is < than 0. 2013 will be used as the out of sample forecasting period.
Robert Dean, Trevor Collier
Primary Advisor's Department
Economics and Finanace
Stander Symposium project
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"An Empirical Study of the Relationship Between Stock Market Price Movements and Macro Financial Conditions, 2001-2013" (2014). Stander Symposium Projects. 386.
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