The Predictive Power of Monetary Policy on International Stock Market Returns—Evidence From TV-ARMAX Model
Xiao Li,
Wenjun Xue,
Kaimeng Zhang
Abstract:In this paper, we apply the time-varying ARMA model with exogenous variable (TV-ARMAX) to examine the predictive power of monetary policy on international stock returns. This method allows time-varying coefficient estimates and uses time-dependent cumulated variation penalty to filter noisy outlier data points. Based on a wide range of 31 countries, our method robustly outperforms other popular methods including the simple linear-regression model (SLM), the vector autoregression and its variants (VAR, TV-VAR, … Show more
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