Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Markets still a good litmus test for the economy

04.03.2009
Don’t put much stock in rumblings that financial markets are a faulty barometer of the nation’s economic climate, a University of Illinois business expert says.

While day-to-day ups and downs can be misleading, finance professor David Ikenberry says broader stock market trends are a good indicator of how the economy is faring and whether it’s on the rise or sputtering.

“Markets are made up of a lot of people with a strong motivation to discern the truth because it’s in their own best interests financially,” he said. “To ignore that dynamic, you’re turning your back on a valuable tool in terms of gauging economic health.”

Questions about whether markets accurately reflect the economy have surfaced as stock indexes continue to slide despite massive government initiatives to stem the deepest economic downturn since the Great Depression.

Ikenberry concedes that one-day swings are sometimes deceptive, rooted in overreactions to news reports or other market nuances. Over time, though, trends typically mirror the state of the economy, he said, including a nearly 50 percent market plunge during the current meltdown.

“While investors may not be able to get it right all of the time, they do get it right on average,” said Ikenberry, whose market research includes long-horizon stock returns.

He says a close look at recent market activity shows that the economy may indeed be responding to an unprecedented wave of bailouts, stimulus plans and other government efforts to reverse the slide.

Most of the market’s recent tumble came last fall, and declines have ebbed in the wake of government moves to shore up credit, housing markets and industries such as auto making that were on the verge of bankruptcy, Ikenberry said.

Trading that was once furious also is stabilizing, based on the Chicago Board Options Exchange Volatility Index, a popular measure of the implied volatility of S&P 500 index options. The index shows volatility remains twice as high as normal, but four times lower than last fall during the peak of the financial crisis.

“After big, precipitous declines in October and November, it really looks like the market is going sideways now,” Ikenberry said. “That reinforces that the market is taking everything into account and trying to look forward.”

Restoring the flow of credit is a key to recovery, and markets are showing early signs that government efforts to mend the banking system are working, he said.

“There’s still a lot of negative news on the horizon and there are still going to be negative contractions,” Ikenberry said. “Things will continue to get worse before they get better and we’re a long way from saying we’ve turned the corner, but there are weak signals that the economy is starting to stabilize a little bit.”

Jan Dennis | EurekAlert!
Further information:
http://www.illinois.edu

More articles from Business and Finance:

nachricht The RWI/ISL-Container Throughput Index started off well in 2018
22.02.2018 | RWI – Leibniz-Institut für Wirtschaftsforschung

nachricht RWI/ISL-Container Throughput Index ending 2017 on a positive note
24.01.2018 | RWI – Leibniz-Institut für Wirtschaftsforschung

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Attoseconds break into atomic interior

A newly developed laser technology has enabled physicists in the Laboratory for Attosecond Physics (jointly run by LMU Munich and the Max Planck Institute of Quantum Optics) to generate attosecond bursts of high-energy photons of unprecedented intensity. This has made it possible to observe the interaction of multiple photons in a single such pulse with electrons in the inner orbital shell of an atom.

In order to observe the ultrafast electron motion in the inner shells of atoms with short light pulses, the pulses must not only be ultrashort, but very...

Im Focus: Good vibrations feel the force

A group of researchers led by Andrea Cavalleri at the Max Planck Institute for Structure and Dynamics of Matter (MPSD) in Hamburg has demonstrated a new method enabling precise measurements of the interatomic forces that hold crystalline solids together. The paper Probing the Interatomic Potential of Solids by Strong-Field Nonlinear Phononics, published online in Nature, explains how a terahertz-frequency laser pulse can drive very large deformations of the crystal.

By measuring the highly unusual atomic trajectories under extreme electromagnetic transients, the MPSD group could reconstruct how rigid the atomic bonds are...

Im Focus: Developing reliable quantum computers

International research team makes important step on the path to solving certification problems

Quantum computers may one day solve algorithmic problems which even the biggest supercomputers today can’t manage. But how do you test a quantum computer to...

Im Focus: In best circles: First integrated circuit from self-assembled polymer

For the first time, a team of researchers at the Max-Planck Institute (MPI) for Polymer Research in Mainz, Germany, has succeeded in making an integrated circuit (IC) from just a monolayer of a semiconducting polymer via a bottom-up, self-assembly approach.

In the self-assembly process, the semiconducting polymer arranges itself into an ordered monolayer in a transistor. The transistors are binary switches used...

Im Focus: Demonstration of a single molecule piezoelectric effect

Breakthrough provides a new concept of the design of molecular motors, sensors and electricity generators at nanoscale

Researchers from the Institute of Organic Chemistry and Biochemistry of the CAS (IOCB Prague), Institute of Physics of the CAS (IP CAS) and Palacký University...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

VideoLinks
Industry & Economy
Event News

2nd International Conference on High Temperature Shape Memory Alloys (HTSMAs)

15.02.2018 | Event News

Aachen DC Grid Summit 2018

13.02.2018 | Event News

How Global Climate Policy Can Learn from the Energy Transition

12.02.2018 | Event News

 
Latest News

Basque researchers turn light upside down

23.02.2018 | Physics and Astronomy

Finnish research group discovers a new immune system regulator

23.02.2018 | Health and Medicine

Attoseconds break into atomic interior

23.02.2018 | Physics and Astronomy

VideoLinks
Science & Research
Overview of more VideoLinks >>>