Topic 4

Question 1

what are the leading indicators?

Answer 1

an economic statistical indicator that changes before general economic conditions and therefore can be used to predict turning points in the business cycle e.g stock prices

Question 2

what are the lagging indicators?

Answer 2

an economic statistical indicator that changes after macroeconomic conditions have already changed e.g interest rates

Question 3

what are the coincident indicators?

Answer 3

an economic statistical indicator that changes (more or less) simultaneously with general economic conditions and therefore reflects the current status of the economy e.g industrial production

Question 4

what are cyclical shares?

Answer 4

• highly positively correlated to the economy
• sales depend sensitively on whether the economy is strong or not
• e.g., consumer durables, DIY supplies, luxury goods, car

Question 5

what are defensive (non-cyclical) shares?

Answer 5

• Less correlated to overall economic activity
• outperform the market when economic growth slows
• experience profit regardless of economic fluctuations
• e.g., household non-durable goods