International Sign Predictability of Stock Returns: The Role of the United States

Henri Kaleva Nyberg, Antti Harri Miikka Pönkä

Research output: Contribution to journalArticlepeer-review


We study the directional predictability of monthly excess stock market returns in the U.S. and ten other markets using univariate and bivariate binary response models. We introduce a new bivariate (two-equation) probit model that allows us to examine the benefits of predicting the signs of returns jointly, focusing on the predictive power originating from the U.S. to foreign markets. Our in-sample and out-of-sample forecasting results indicate superior predictive performance of the new model over competing univariate binary response models, and conventional predictive regressions, by statistical measures and market timing performance. This highlights the importance of predictive information from the U.S. to the other markets providing also practical improvement in investors' market timing decisions.
Original languageEnglish
JournalEconomic Modelling
Pages (from-to)323–338
Number of pages16
Publication statusPublished - 2016
MoE publication typeA1 Journal article-refereed

Fields of Science

  • 511 Economics

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