Abstract
In this paper we use an economic tracking portfolio (ETP) approach for forecasting future values of macroeconomic variables in the IT-intensive Finnish stock market. The results confirm recently obtained conclusions in Lamont [J. Econ. 105 (2001) 161] and Hayes [Bank of England Working Paper 137/2001] that ETPs contain relevant information about macroeconomic variables. When compared to the market portfolio, some industry portfolios seem to forecast the future macroeconomy better than others. In addition, our results give support for the use of industry portfolios in out-of-sample forecasting in the ETP framework. Especially the ‘new economy’ stock returns have clear forecasting power for future inflation and changes in industrial production in the Finnish economy at short horizons.
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