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Market-Based Solutions to Vital Economic Issues


Market-Based Solutions to Vital Economic Issues
Mar 22, 2014

Forecasting through the Rear-View Mirror: Data Revisions and Bond Return Predictability


Macroeconomic data are typically subject to future revisions and released with delay. Predictive return regressions using such data therefore potentially overstate the information set available to investors in real time. We document that data revisions account for a sizable share of in-sample and out-of-sample predictive power for Treasury returns found in macroeconomic data. This is partly explained by the fact that information contained in revisions to prior months’ releases is incorporated into bond prices. Survey forecasts available in real time contain information about future revised data that is orthogonal to the real-time data and also helps to predict bond returns.

Note: Research papers posted on SSRN, including any findings, may differ from the final version chosen for publication in academic journals.

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