Anybody know why econometric analysis is better at forecasting expansions than recessions? This point is made in schweser and I don’t have the CFAI text with me right now to check.
I am guessing here: econometrics is a lot of the regression analysis etc. that we do. in times of expansion - a lot more data is available, and even though analyst may have reason to suspect quality of some of the data, he still has enough data to work with to remove the biases etc. present in the data set. With recessions - a. not as much data. b. data may also have survivorship etc. biases in them.
mwvt9 Wrote: ------------------------------------------------------- > Anybody know why econometric analysis is better at > forecasting expansions than recessions? > > This point is made in schweser and I don’t have > the CFAI text with me right now to check. Just checked in the text. There really is no further explanation of it at all. Literally the last two sentences say it rarely forecasts recessions well and has a better record in anticipating upturns… so if you really have to know, i’d go with cpk’s explanation, but it looks like they won’t be asking that on the test.
I think it’s because a recession is more likely to come from an exogenous shock, e.g. a financial crisis, that is inherently random and unpredictable. On the other hand an expansion is probably less likely to result from some kind of shock; they’re more predictably the result of fundamental drivers. The one exception I can think of is a positive technological shock, but those can come any time. I have no evidence to back this up, just a plausible story IMO.
Thanks guys.