La Jolla Economics

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The Country Selector

March 29, 2001

We produce quarterly forecasts by applying the Country Selector model to stock market data. Looking at the second quarter; we estimate that Australia has a 79.2% probability of outperforming the U.S. (Table 1). To evaluate our joint forecasts of the relative performance of major foreign markets; we allocate funds to various regions in direct proportion to the difference between the country's probability of outperforming the U.S. This procedure overweights countries or regions with a probability in excess of 50% and underweight those with less than 50% probability. The numbers suggest that on an equal weighted basis the U. S. is likely to be in the middle of the pack. However; as one takes into account the weights of the various countries; the outlook changes dramatically.

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