Predicting returns on asset markets of a small, open economy and the influence of global risks

November 22, 2017
Issue 2017-14


Stylized facts of asset return predictability are mainly based on evidence from the US, a large, closed economy, and, hence, are not necessarily representative of small, open economies. Furthermore, discountrate news mainly drive US asset returns. This is not the case in other economies. We use Switzerland as example to highlight the importance of these issues and to assess the impact of global risks on the predictability of asset returns of a small, open economy. We find that the forecast ability of the best Swiss predictive variable varies over time. This time variation is linked to global foreign currency risks.

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JEL classification:
E32, F31, G15, G17
Bond market, business cycle, foreign exchange rate, predictability, risk premium, stock market

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  • David Haab

  • Dr. Thomas Nitschka

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