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EIA's Monetary Indicator

EIA’s proprietary monetary indicator is motivated by economic theory and empirical research: the indicator relies on a combination of Fed policy signals shown to have superior predictive viability with respect to fund availability and security returns.

Since its conception by EIA’s founders in the mid-1990s, the indicator continues to exhibit a significant systematic relation with stock returns in ‘out-of-sample periods’.

Academic research confirms that the EIA monetary indicator has several features that make it superior relative to other rotation-based investment strategies because the indicator: 

  • has a forward-looking aspect; 
     

  • incorporates the current and future availability of money; 
     

  • captures current and predicted developments in inflation and economic activity; 
     

  • represents a robust and unbiased indicator of genuine shifts in market conditions; 
     

  • has been shown to maintain a consistent systematic link with security returns; 
     

  • has shown consistent predictive ability in periods that are far removed from the original sample; and 
     

  • relies on Fed policy signals that are readily available, objective and measured without error.

EIA’s Proprietary Monetary Indicator versus Alternative Indicators

The following studies directly address the efficacy of the EIA monetary indicator versus alternative indicators, including the business cycle.

Research Relating Risk Premiums & Monetary Conditions