The Predictability Of U.S Economic Uncertainty For The International Stock Market Excess Return

This paper takes the method of time series analysis.The six proxies of economic uncertainty in the United States,VaR,Decomposed VIX,VRP,IP Volatility,CFNAI Volatility,and Macro,and the three indexes extracted from the six proxies of economic uncertainty in the United States,EW,PC,and PLS,are used to predict the monthly excess returns on the 20 countries and regions respectively through the in-sample analysis,the out-of-sample analysis and the pooled regression forecasting.The forecasting results suggest that for the most countries and regions the predictive power of VaR remains statistically and economically strong in the all horizons.Apart from these,the power of VaR is significantly positive.The performance is so robust even in the Guofu's sample and the Other sample.However,the performance of the rest of the proxies of economic uncertainty in the United States is not as good as VaR.But from the perspective of goodness of fit,for the most countries and regions their goodness of fit is significantly superior to the benchmark forecasting model of the historical average.Then,extract from the six proxies of economic uncertainty in the United States and get three comprehensive indexes.The forecasting results show that both PC and PLS can predict the international stock market significantly in the all horizons.After the out-of-sample analysis,the predictability of PC is more robust.Finally,we conclude that the U.S economic uncertainty can predict the international stock market excess return significantly.After that,we continue to explore the conduction mechanism of this predictability and find that it is mainly through the international trade and spillover effect.The 19 countries and regions are sorted according to the total import trade volume from U.S and the total export volume to U.S,from high to low.In the international trade,according to the total trade volume of imports,the forecasting results for the top 30%countries and regions are much better than that for the last 30%countries and regions.However,according to the total trade volume of exports,the two are not different significantly.Therefore,the trade imported from the United States makes predictability of the U.S economic uncertainty different for different national stock markets.Meanwhile,the spillover effect of the global economy also paves the way for this predictability.The spillover effect is mainly reflected in the expansion of global trade.The spillover effect between the real economy and the capital market is also obvious.