Are the leading indicators really leading? Evidence from mixed-frequency spillover approach.

• A novel mixed-frequency spillover method of Cotter et al. (2023) is adopted. • The spillover effects between monthly leading indicators and weekly financial market prices in China is studied. • Some monthly leading indicators, i.e., CMI and CPMI, can lead the monthly performance of financial markets. • All the monthly leading indicators fail to lead the weekly performance of financial markets. • The mixed-frequency approach yields much higher spillover measures than the common-frequency method. • Stock and commodity markets are spillover transmitters to other financial markets in both CF and MF conditions. • CMI and CPMI are more effective leading indicators than the CCCI. Leading indicators, usually measured at low frequency (e.g., monthly or quarterly), are widely used as pioneering indices to foresee the future perspective of macro economy and financial markets. However, it is not clear whether these low-frequency leading indicators really lead the actual performance of financial markets, which are usually measured at high frequency (e.g., daily or weekly). This paper uses a novel mixed-frequency spillover method of to examine the spillover effects between monthly leading indicators and weekly financial market prices in China, aiming to assess the pioneering function of these leading indicators. The empirical results suggest that, first, some monthly leading indicators can lead the monthly performance of financial markets, but all of them fail to lead the weekly performance of financial markets. Second, the mixed-frequency approach yields much higher spillover measures than the common-frequency method of Diebold and Yilmaz (2012). Third, China's stock and commodity markets are spillover transmitters to other financial markets in both common and mixed frequency conditions. Finally, the China Monetary Index (CMI) and the Manufacturing Purchasing Managers' Index (CPMI) are more effective leading indicators than the China Consumer Confidence Index (CCCI). These findings help investors and policymakers to adjust risk management strategies in a timely manner and facilitate more accurate financial forecasting. [ABSTRACT FROM AUTHOR]