Forecasting growth and stock performance using government and corporate yield curves: Evidence from the European and Asian markets

Abstract

Past research has shown that the government yield curve and credit spreads can predict future macroeconomic parameters such as the growth rate. However, it has focused mostly on the US government yield curve. In this study we extend the existing notion by using both government and corporate yield curves to predict economic growth and stock market behavior in three main markets outside the US.The results we obtained from the British, European and Japanese markets reveal that government and corporate yield curves can indeed predict future economic growth and stock market trends.