Improving the usefulness of the Purchasing Managers’ Index

Peláez, Rolando F.

doi:10.1057/s11369-018-0092-2

Cited by 5 publications

(6 citation statements)

References 15 publications

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“…Our results are in strong contrast to those reported for the US economy in Pelaez (2003b) and Cho and Ogwang (2006) where it was found out that an optimal composite PMI should be constructed using three and one rather than five original sub-indices, respectively. On the opposite, our results confirm the empirical validity of the prevailing weighting scheme and point out that an inclusion -not exclusion -of one additional sub-component to the existing PMI composition may further improve its leading properties.…”

Section: Resultscontrasting

confidence: 99%

“…For example, Pelaez (2003a) suggests to use time-varying rather than fixed weights. Pelaez (2003b) proposes to compute a version of the PMI based only on the following three components: backlog of orders, employment, and suppliers' delivery times, effectively attaching a zero weight to output and stock of purchases. Cho and Ogwang (2006) are even more restrictive in suggesting to use only the employment component of the composite PMI.…”

Section: Literature Reviewmentioning

confidence: 99%

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Dissecting the purchasing managers’ index: Are all relevant components included? Are all included components relevant?

Siliverstovs

2018

Panoeconomicus

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In this paper we scrutinise the composition of one of the most renowned economic indicators that is regularly released for more than 30 countries and regions. The composite Purchasing Managers? Index (PMI) is constructed by pooling several survey based sub-components with certain fixed weights. Its characteristic feature is that its computation is based on the standardised methodology by that was developed for the PMI in the US more than thirty years ago. Though the uniform methodology makes the international comparison of national PMIs an easy and transparent task, it is not immediately clear whether the current fixed weighting scheme of the PMI components is supported by the data for other countries than US. We address this question using Switzerland as an example and our approach, based on Boriss Siliverstovs (2017), can be easily extended to other national PMIs. We find that the relative weights of the PMI components are generally supported by the data, except the fact that one component, found very informative for explaining GDP growth, is currently omitted from the PMI composition.

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Section: Resultscontrasting

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Dissecting the purchasing managers’ index: Are all relevant components included? Are all included components relevant?

Siliverstovs

2018

Panoeconomicus

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“…Pelaez (2003) presents how unexpected changes in the PMI affect the domestic and overseas financial markets. His work develops a new, more superior index compared to the PMI by showing that PMI lacks optimal weighting.…”

Section: Theoretical Background and Literature Analysismentioning

confidence: 99%

On the relation between purchasing manager’s index and trade policy uncertainty: evidence from China, Japan and the USA

Shaikh

2021

JCEFTS

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Purpose Trade uncertainty does influence the firm’s new investment, profitability and supply chain finance. Consequently, it results in decreased consumption and low consumer confidence and eventually disrupts global economic activity. This paper aims to propose a model to uncover the effects of trade policy uncertainty (TPU) on the real economic activity and economy’s health measured in terms of the purchasing manager’s index (PMI). Design/methodology/approach This study uses the PMI, trade policy uncertainty index, economic policy uncertainty index and short-term interest rate. The relation between economic activity and uncertainty was studied using nested regression and vector autoregressive model. Findings The empirical results show that PMI of China and Japan were more responsive to the TPU of the USA and remained more fluctuating during the year 2018–2019. Importantly, this paper notices that the US’s PMI reached a low historically subject to its own trade policy and tension with China. Overall, TPU has shown more pronounced effects on PMI across China, Japan and the USA, followed by important economic and political events and major trade tariff uncertainty deals. Practical implications The empirical outcome holds some practical implications trade uncertainty affects not only the economic health of the economy but also market participants, global investors and international political environment, recent trade barriers, tariff wars and ambiguity raise question about free and fair global trade and competitiveness of the member country of the world trade organization. Originality/value The work is a novel that attempts to explain economic activity and supply chain through PMI. Unlike conventional economic indicators, e.g. gross domestic product, producer price index, consumer price index, employment, etc. PMI measures manufacturing industries’ overall status concerning the number of orders, inventory levels, productions, supplier deliveries and employment.

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“…This would depend on the views from global macro researchers that analyse countries, or regions, and try to estimate whether the economic conditions are conducive of growth combined with optimism about future prospects. A supplement to the views of macro researchers would be an economic activity indicator such as the Purchasing Manager's Index (Koenig, 2002;Pelaez, 2003;Afshar et al, 2007;Tsuchiya, 2012). 1 Clearly, such views are bound to be erroneous and have a significant degree of error.…”

Section: The Bounce Basket To Mitigate the Market Rebound Effectmentioning

confidence: 99%

Behavioural Bias Benefits: Beating Benchmarks By Bundling Bouncy Baskets

Kashyap

2021

Accounting & Finance

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We consider in detail an investment strategy, titled ‘the bounce basket’, designed for someone to express a bullish view on the market by allowing them to take long positions on securities that would benefit the most from a rally in the markets. We demonstrate the use of quantitative metrics and large amounts of historical data towards decision‐making goals. This investment concept combines macroeconomic views with characteristics of individual securities to beat the market returns. The central idea of this theme is to identity securities from a regional perspective that are heavily shorted and yet are fundamentally sound with at least a minimum buy rating from a consensus of stock analysts covering the securities. We discuss the components of creating such a strategy including the mechanics of constructing the portfolio. Using simulations, in which securities lending data is modelled as geometric Brownian motions, we provide a few flavors of creating a ranking of securities to identity the ones that are heavily shorted. An investment strategy of this kind will be ideal in market scenarios when a downturn happens due to unexpected extreme events and the markets are anticipated to bounce back thereafter. This situation is especially applicable to incidents being observed, and relevant proceedings, during the Coronavirus pandemic in 2020–2021. This strategy is one particular way to overcome a potential behavioural bias related to investing, which we term the ‘rebound effect’.

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Improving the usefulness of the Purchasing Managers’ Index

Cited by 5 publications

References 15 publications

Dissecting the purchasing managers’ index: Are all relevant components included? Are all included components relevant?

Dissecting the purchasing managers’ index: Are all relevant components included? Are all included components relevant?

On the relation between purchasing manager’s index and trade policy uncertainty: evidence from China, Japan and the USA

Behavioural Bias Benefits: Beating Benchmarks By Bundling Bouncy Baskets

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