Hey Vlad,

Great post. I like how you clearly defined your hypothesis. I also like how you used the data to check a public claim, we need more of that in the media.

Interesting followups would be to think more about whether a lag might exist between the two data sets. High unemployment may take time to be reflected in the market and vice versa.

Hi Delaney,

Thanks for your feedback!

As for the lag between the two datasets, I feel like including one will suit my research really well since the article also refers to the unemployment rate as a 'lagging factor.' This can potentially shift the dates for which I am calculating the means of SPY returns and lead to different results at the end.

I will try to find some information on what the lag can possibly be. If I cannot find anything concrete, I will go ahead and estimate it using the information that I have.

This is great Vlad - another thing you might want to test is the MoM delta in the unemployment rate. Also, try creating a weighted blend of economic variables.

Looking forward to seeing more of this research!

Hi Stefan,

Thanks for your comment!

Just to clarify, by MoM do you mean the method of moments? I am not sure if I have come across this method before, but I will definitely take a look at it and see how to include it in my research.

Also, I like the idea of adding more economic variables to my research. I might even borrow some ideas from the other economic tests (referenced in my post) to see how their variables are correlated with SPY returns.

Oops sorry for being unclear, I meant month over month.

Understanding macroeconomics is one of the most important aspects to successful trading/investing, one book that I really liked when sifting through indicators to use was WSJ's 'Guide to the 50 Economic Indicators That Really Matter'

You need to read my articles in Applied Economics (Value of hedge and expected returns by J Ma, M Tang, Y Wang - Applied Economics, 2016) about the unemployment rate and the equity. I also have a working paper using the unemployment rate to forecast the recessions in USA. J. Ma

Thanks for the clarification, Stefan! I will also make sure to read through the WSJ article you recommended.

Jinpeng, thanks for sharing your works with me! I am looking forward to familiarizing myself with them.

@jingpeng, great paper!

Jinpeng, I have read your paper 'Value of hedge and expected returns' and thought that it does a great job of proposing hedge strategies that rely on either one or both of the following macro-indices - the unemployment rates and the capacity utilization - and comparing the performance across those strategies.

I especially like how you base your hedge strategies on the information that is publicly available to investors, thus leading to conclude that, because a market is only efficient when it is impossible to make economic profits by trading on the basis of public information and because your hedge strategies have historically outperformed the S&P 500 index, it must be the case that the market is currently inefficient.