Top down approach

Why is this statement wrong?

The top-down approach is often more accurate in predicting the effect on the stock market of a contemporaneous change in a key economic variable than is the bottom-up approach.

because topdown approach examines key ecnomic variables (interest rates, GDP, inflation, etc) whereas bottom up examines company fundaentals (earnings, revenue, inventory, etc).

Because the top down approach has nothing to do with economics it is when one starts with the neck and works their way down to the breas…


Contemporaneous = happening in the same period

top down looks at historical trends while bottom up looks at current variables and projects out. If historical relationships change significantly between variables then the top down method of using historical trend analysis would be less effective (ie in a regime change). Volume 3 pg 144 example 7.