Studying the Relationship between Stock Prices of Publicly Traded US Construction Companies and Gross Domestic Product: Preliminary Step toward Construction–Economy Nexus
Publication: Journal of Construction Engineering and Management
Volume 146, Issue 1
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.
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Data Availability Statement
All data, models, and code generated or used during the study appear in the published article.
Acknowledgments
The authors would like to thank Dr. Charles B. Sims, Associate Professor of Economics and Faculty Fellow at the Baker Center for Public Policy at the University of Tennessee in Knoxville, for providing valuable guidance and insights that helped shape this research in its current form.
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©2019 American Society of Civil Engineers.
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Received: Dec 22, 2018
Accepted: May 22, 2019
Published online: Oct 30, 2019
Published in print: Jan 1, 2020
Discussion open until: Mar 30, 2020
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