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business climate proxies?

Joy Pathak

Joy Pathak

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Whats are some good proxies(economic indicators) for the business climate? I need something that is reported monthly e.g S&P monthly returns can be used. Are there any others?

Edit:

Also..how can I measure liquidity in the bond market? e.g I can use market depth..bid ask spread.. as proxies. is there anything else?
 
Joy Pathak said:
Whats are some good proxies(economic indicators) for the business climate? I need something that is reported monthly e.g S&P monthly returns can be used. Are there any others?
Click to expand...

Why not use DJ?
 
What do you mean by the business climate? I think bond yields would be a good proxy, as well as stock market indices.

As to Bond market liquidity, it would be issue specific. If you are talking on the run US treasuries, it would be hard to judge (more like I have no idea), but once you move into Munis then you can quantify it easier: there is a finite amount outstanding securities for any given issue. Furthermore, as it is a dealer market and not an exchange market you can probably count the number of market makers, which could help you gauge liquidity in the market. another idea would be to look at the success of the issue, if it was well receive or not. Hope this helps.
 
Guys, the stock market is not a good proxy. what about the crash in 87? It had no underlying business issue causing it.

As an aside, I think proxies are pretty hard to find because many prices in the real world are "sticky."
 
We should make sure in what sense we need that measure. Both above posts are logical.
 
JulianT said:
What do you mean by the business climate? I think bond yields would be a good proxy, as well as stock market indices.

As to Bond market liquidity, it would be issue specific. If you are talking on the run US treasuries, it would be hard to judge (more like I have no idea), but once you move into Munis then you can quantify it easier: there is a finite amount outstanding securities for any given issue. Furthermore, as it is a dealer market and not an exchange market you can probably count the number of market makers, which could help you gauge liquidity in the market. another idea would be to look at the success of the issue, if it was well receive or not. Hope this helps.
Click to expand...

Stock Market indices is what everyone has told me and what published articles cite. There are some index's available too that can be found monhtly.

It's for corporate bonds. I can get data from dealers. I will just ask them I suppose.

thanks.
 
euroazn said:
Guys, the stock market is not a good proxy. what about the crash in 87? It had no underlying business issue causing it.
Click to expand...

It is irrelevant in a empirical study and can be considered an outlier. It can just be ignored. No study will go back that far anyways.
 
unemployment index, inflation index...gdp of a country. gnp of a country. wouldn't liquidity be the trading volume?
 
There are all sorts of indicators out there that could conceivably be useful for an analysis, depending upon what you're after.

The various flavors of CPI / RPI are closely watched, obviously. You might also look at the Institute for Supply Management's Purchasing Managers Index (PMI); along similar lines, you might look at the Baltic Dry Index. Both are widely used for readings on the business cycle. I'm sure there are plenty of other indexes of this sort that I've just never encountered. These kinds of things are manufacturing-focused, and while that's not the largest chunk of US economic activity, you can see changes here pretty early, since this is far up the supply chain.

The Fed produces monthly consumer credit reports that detail overall levels of credit, broken down by type (revolving, auto loans, etc.) that could probably be useful as a practical measure of consumer sentiment; there are of course measures like the University of Michigan Consumer Sentiment Index, or a similar index the CCI, that are based on consumer polling. These can give a more direct sense of what's happening at point of purchase.

Per market, there are of course several other things you might look at depending upon your interest.
 
Joy Pathak said:
It's for corporate bonds. I can get data from dealers. I will just ask them I suppose.
Click to expand...
Just to add to the previous post, if you're looking for bond-related indexes, the standard benchmarks are usually Lehman Agg (now I guess called Barclay's Agg, although that still sounds funny to me), with its various subindexes. Merrill Lynch (BofA) and Citi both produce broad bond benchmarks and breakdowns by debt type. Typical of FI, getting detailed data on these may entail licensing costs.

My own investigations into worthwhile spread proxies for corporate credit show that the various CDX / iTraxx baskets actually perform quite well in a variety of circumstances, but if you're looking at HY or certainly distressed this is not the method I would choose. Using CDS indexes for historical studies creates some headaches for handling index rolls, in terms of matching maturities and weighting properly by liquidity, but it's certainly doable and can provide information in spread terms rather than price terms, which is a huge benefit for these sorts of analyses on corporate bonds.
 
Thanks @bob Appreciate the info. I was looking for something along the terms you said. Especially the second post. Very helpful.
 
Joy Pathak said:
I have read Black Swan. I talked to Taleb about both his books related to the topic. My statement stands. Not relevant to what I am looking for.
Click to expand...

All I'm saying is that a proxy that measures the sentiments of a herd of sheep doesn't neccesarilly measure the health of business, and disregarding things as "outliers" can often have very bad effects. Any reason you're not using GDP?

EDIT: Ah, I see you want monthly. Unfortunately, there is no free monthly estimate of GDP, although you can find some if you are willing to pay up. However, the BEA does publish some figures on a monthly basis, you should check it out: http://www.bea.gov/national/nipaweb/SelectTable.asp?Selected=N
(The monthly figures are all in section 2, btw. (M) starts with Table 2.6 and data starts from 1959)
 
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