Forecasting Public Investment Using Stock Returns of the Construction Industry in Japan : The Midas-Var Approach

Fiscal foresight has recently received much attention in the literature. In this context, this study examines whether stock returns of the construction industry can forecast public investment in Japan. In the forecasting exercise, the VAR model with mixed-frequency data sampling regression is employed to exploit the daily stock prices. Then, we estimate the macroeconomic effects of fiscal news shock using the local projection method. The results show that the stock returns of the construction industry contain relevant information about future public investment, and that fiscal news shock has the delayed positive effects on macroeconomic variables, consistent with New Keynesian view