The relationship between the United States’ real GDP and the overall stock market has been acknowledged by researchers and investors alike. This research paper will document a newly created composite index that will try to more accurately predict the overall U.S. economy through the proxy of GDP than the current S&P 500 index. Success will be determined if the composite index representing the addition of a service sector component to the S&P 500 is more correlated to U.S. real GDP than the S&P 500 alone. The results suggest that the service sector is not quite adequately in the S&P 500. A stronger service component in the S&P 500 would allow the index to be more statistically correlated to U.S. real GDP during the period of 1995-2009. The model will allow decision-makers to produce better choices based on a more accurate understanding of current economic conditions.
Recommended CitationNette, William, "A New Stock Index to Better Predict the United States' Real GDP" (2010). Honors Projects in Finance. Paper 12.