Forecasting political developments with the help of financial markets

Schneider, Gerald

Forecasting political developments with the help of financial markets

Files

Schneider_253702.pdf(304.33 KB)

Date

2014

Publication type

Contribution to a collection

Published in

Predicting the future in science, economics, and politics / Wayman, Frank Whelon ... (ed.). - Cheltenham, UK : Elgar, 2014. - pp. 213-231. - ISBN 978-1-78347-186-7

Abstract

Using standard econometric techniques, I test the relative predictive accuracy of naïve autoregressive models in predicting political events with competing models that contain information from financial markets. The evidence assembled shows that information from stock markets sensibly improves the predictive accuracy of models that largely rely on the auto-regression of the series under examination to produce forecasts. The lagged development of the Tel Aviv Stock Exchange allows me to predict the level of cooperation in the conflict between Israel and the Palestinians the following day more precisely than with an alternative model that just takes the lagged political interactions into account. Because violent events come much more often as a surprise than cooperative developments, the inclusion of financial market information does, in return, not improve the accuracy in the prediction of the daily level of conflict in the Middle East.

Subject (DDC)

320 Politics

Keywords

Prediction; Financial Markets; Forecasting; Time Series

Cite This

ISO 690

SCHNEIDER, Gerald, 2014. Forecasting political developments with the help of financial markets. In: WAYMAN, Frank Whelon ..., ed.. Predicting the future in science, economics, and politics. Cheltenham, UK:Elgar, pp. 213-231. ISBN 978-1-78347-186-7. Available under: doi: 10.4337/9781783471874.00022

BibTex

@incollection{Schneider2014Forec-29224,
  year={2014},
  doi={10.4337/9781783471874.00022},
  title={Forecasting political developments with the help of financial markets},
  isbn={978-1-78347-186-7},
  publisher={Elgar},
  address={Cheltenham, UK},
  booktitle={Predicting the future in science, economics, and politics},
  pages={213--231},
  editor={Wayman, Frank Whelon ...},
  author={Schneider, Gerald}
}

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Bibliography of Konstanz

Yes