El-Adaway, I H; Ali, G G; Abotaleb, I S and Barber, H M (2020) Studying the relationship between stock prices of publicly traded US construction companies and gross domestic product: Preliminary step toward construction-economy nexus. Journal of Construction Engineering and Management, 146(1): 04019087, ISSN 0733-9364
Abstract
Many scholars from multiple professional and academic disciplines have investigated the various links between the construction industry and economic output. Nevertheless, there remains a noticeable dearth of studies that address the potential impact of the players within the construction industry on various economic indicators. The goal of this research is to study how the economic performance of the US-measured in GDP-is impacted by the performance of the construction industry and its key players and how the performance of the construction industry could help in forecasting future US GDP. This goal is achieved by studying the relationship between GDP, total construction spending (TTLCONS), the Standard and Poor's 500 (S&P500) index (GSPC), and the stocks of major publicly traded construction companies. The authors applied an interdependent research methodology that included (1) data collection, (2) statistical testing on the data using correlation analysis and Granger causality testing, and (3) vector autoregression (VAR) for both fitting and prediction purposes. A positive correlation was found between GDP, the S&P500, TTLCONS, and the stocks of major publicly traded construction-related companies. Also, the Granger causality test showed that some major construction company stocks are useful in forecasting GDP. The developed VAR model was used to forecast GDP for 2 years with acceptable accuracy. In this connection, the model was validated by successfully forecasting in a retrospective manner the effect of the 2008 financial crisis. This shows that the stock prices of select publicly traded construction and equipment companies can be used to predict GDP. In fact, a similar model could have been used to predict the 2008 economic collapse and develop ex ante mitigation strategies. The findings of this study could open opportunities for abandoning the notion of studying the construction industry solely using the health of residential construction. As such, this research should help in moving toward the development of a construction-economy nexus.
| Item Type: | Article |
|---|---|
| Index terms: | strategy, construction spending, Granger causality test, gross domestic product, forecasting, research methodology, economic indicator, construction industry, residential construction, accuracy, correlation analysis, construction company, testing, mitigation |
| Subjects: | financial risk, professional practice, research design and methodology, data analysis and analytics, management, organization, factor and component analysis, construction integration, professional development, economic analysis, industry analysis, statistical analysis, prediction and forecasting |
| Topics: | Research Practice, Cost Management, Business Strategy, Information Management, Engineering Principles |
| Descriptive scope: | 4 PCTA |
N.B. Descriptive scope is a count of how many of the five facets of empirical research are indicated by the words used in title, abstract and keywords. It is not intended as a judgement on the research; merely a count of the kind of word we would expect to indicate Phenomenon, Concepts, Theoretical framing, Empirical techniques, Analytical techniques. If all five are present, then a code of “5 PCTEA” will indicate this. If you feel the coding for this record is questionable, we welcome discussion around the terms we matched or the way we categorized them. The facet you would expect may not be coded, or a facet may be coded inappropriately. This can also bear on a larger question, of which facets should be treated as defining in construction management research. Please get in touch, and we will look at it. More details here