Fourth-quarter Economic Growth and Time-varying Expected Returns

Stig V. Møller, Jesper Rangvid

Publikation: KonferencebidragPaperForskningpeer review

Resumé

We show that fourth-quarter macroeconomic growth rates strongly predict the returns of the aggregate market, small- and large-cap stocks, portfolios sorted on book-to-market and dividend yields, bond returns, and international stock returns, whereas growth rates during the other quarters do not predict returns. Fourth-quarter economic growth rates contain considerably more information about expected returns than standard variables used in the literature, are
robust to the choice of macro variable, and work in-sample, out-of-sample, and in subsamples. To help explain these results, we show that economic growth and growth in consumer confidence are correlated during the fourth quarter, but not during the other quarters: When economic growth is low during the fourth quarter, confidence in the economy is also low such that investors require higher future returns. We discuss rational and behavioral reasons why fourth-quarter economic growth, growth in consumer confidence, and expected returns are related.
OriginalsprogEngelsk
Publikationsdato2012
Antal sider50
StatusUdgivet - 2012
BegivenhedThe 39th European Finance Association Annual Meeting (EFA 2012) - Copenhagen Business School, Frederiksberg, Danmark
Varighed: 15 aug. 201218 aug. 2012
Konferencens nummer: 39
http://www.efa2012.org/

Konference

KonferenceThe 39th European Finance Association Annual Meeting (EFA 2012)
Nummer39
LokationCopenhagen Business School
LandDanmark
ByFrederiksberg
Periode15/08/201218/08/2012
Internetadresse

Emneord

  • Fourth-quarter economic growth
  • Expected returns
  • Consumer confidence
  • Risk compensation
  • Mispricing

Citer dette

Møller, S. V., & Rangvid, J. (2012). Fourth-quarter Economic Growth and Time-varying Expected Returns. Afhandling præsenteret på The 39th European Finance Association Annual Meeting (EFA 2012), Frederiksberg, Danmark.
Møller, Stig V. ; Rangvid, Jesper. / Fourth-quarter Economic Growth and Time-varying Expected Returns. Afhandling præsenteret på The 39th European Finance Association Annual Meeting (EFA 2012), Frederiksberg, Danmark.50 s.
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Møller, SV & Rangvid, J 2012, 'Fourth-quarter Economic Growth and Time-varying Expected Returns' Paper fremlagt ved The 39th European Finance Association Annual Meeting (EFA 2012), Frederiksberg, Danmark, 15/08/2012 - 18/08/2012, .

Fourth-quarter Economic Growth and Time-varying Expected Returns. / Møller, Stig V.; Rangvid, Jesper.

2012. Afhandling præsenteret på The 39th European Finance Association Annual Meeting (EFA 2012), Frederiksberg, Danmark.

Publikation: KonferencebidragPaperForskningpeer review

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N2 - We show that fourth-quarter macroeconomic growth rates strongly predict the returns of the aggregate market, small- and large-cap stocks, portfolios sorted on book-to-market and dividend yields, bond returns, and international stock returns, whereas growth rates during the other quarters do not predict returns. Fourth-quarter economic growth rates contain considerably more information about expected returns than standard variables used in the literature, arerobust to the choice of macro variable, and work in-sample, out-of-sample, and in subsamples. To help explain these results, we show that economic growth and growth in consumer confidence are correlated during the fourth quarter, but not during the other quarters: When economic growth is low during the fourth quarter, confidence in the economy is also low such that investors require higher future returns. We discuss rational and behavioral reasons why fourth-quarter economic growth, growth in consumer confidence, and expected returns are related.

AB - We show that fourth-quarter macroeconomic growth rates strongly predict the returns of the aggregate market, small- and large-cap stocks, portfolios sorted on book-to-market and dividend yields, bond returns, and international stock returns, whereas growth rates during the other quarters do not predict returns. Fourth-quarter economic growth rates contain considerably more information about expected returns than standard variables used in the literature, arerobust to the choice of macro variable, and work in-sample, out-of-sample, and in subsamples. To help explain these results, we show that economic growth and growth in consumer confidence are correlated during the fourth quarter, but not during the other quarters: When economic growth is low during the fourth quarter, confidence in the economy is also low such that investors require higher future returns. We discuss rational and behavioral reasons why fourth-quarter economic growth, growth in consumer confidence, and expected returns are related.

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Møller SV, Rangvid J. Fourth-quarter Economic Growth and Time-varying Expected Returns. 2012. Afhandling præsenteret på The 39th European Finance Association Annual Meeting (EFA 2012), Frederiksberg, Danmark.