A Minimalist Model for the Toronto Stock Exchange
Theory of the Model
The dependent variable used in this study is the TSE-300, a composite index of the 300 largest-capitalized stocks sold on the Toronto Stock Exchange. TSE-300 data is gathered from the last trading day of the named quarter beginning in the fourth quarter of 1991 and ending in the fourth quarter of 1999.
The independent variables tested included the following:
- U.S. real Gross Domestic Product, as a measure of U.S. economic strength.
- The closing levels of the Dow Jones Industrial Average and the NASDAQ composite index on the last trading day of the named quarter.
- Canada's Gross Domestic Product, as a measure of Canadian economic strength.
- The Consumer Sentiment Index, as an estimate of the seemingly random and irrational behavior of consumers and investors.
- U.S. debt service payments as a percentage of disposable personal income, as a measure of frugality and borrowing.
- U.S. total public debt as a measure of public debt offerings competing with equity in the capital markets.
- The Monetary Conditions Index is used to measure monetary "tightness" in a period.
- The 90-day commercial CD rate through the Bank of Canada, as a measure of debt capital as an alternative to equity investing.
- Average 3-month yields from Canadian Treasury bonds, as another measure of government "crowding out."
Estimating Model >>