Exploring the value of forecasts of macroeconomic variables for portfolio construction.
This paper uses forecasts of macroeconomic variables to analyse data sourced from Refinitiv Datastream to challenge traditional investment ideas around forecasting. This research provides a detailed exploration of relationships between data series, to exemplify how forecasts and market data can be used to build more efficient portfolios that incorporate macroeconomic forecasts in a systematic fashion. Finally, this analysis demonstrates that by incorporating both macroeconomic and market dynamics, portfolios can outperform in absolute and relative terms for investors.
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- How to construct portfolios that are conditional on Refinitiv’s polling data of key macroeconomic variables and shed light on the invaluable information embedded in forecasts.
- The extra rewards that are available to investors who formulate joint forecasts of market and macro conditions rather than treating them as separate.
- Provide some ideas about how to exploit the spread of opinions among the polled forecasters to build more efficient portfolios.
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It is the continuous interaction between macroeconomic trends and market prices that creates better defined regimes by allowing macroeconomic uncertainty to influence the probability of being in a certain market regime.