End-of-the-Year Economic Growth and Time-varying Expected Returns

Stig V. Møller, Jesper Rangvid

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

We show that macroeconomic growth at the end of the year (fourth quarter or December) strongly influences expected returns on risky financial assets, whereas economic growth during the rest of the year does not. We find this pattern for many different asset classes, across different time periods, and for US and international data. We also show that movements in the surplus consumption ratio of Campbell and Cochrane (1999) , a theoretically well-founded measure of time-varying risk aversion linked to macroeconomic growth, influence expected returns stronger during the fourth quarter than the other quarters of the year. Our findings suggest that expected returns, risk aversion, and economic growth are particularly related at the end of the year, when we also expect consumers׳ portfolio adjustments to be concentrated.
We show that macroeconomic growth at the end of the year (fourth quarter or December) strongly influences expected returns on risky financial assets, whereas economic growth during the rest of the year does not. We find this pattern for many different asset classes, across different time periods, and for US and international data. We also show that movements in the surplus consumption ratio of Campbell and Cochrane (1999) , a theoretically well-founded measure of time-varying risk aversion linked to macroeconomic growth, influence expected returns stronger during the fourth quarter than the other quarters of the year. Our findings suggest that expected returns, risk aversion, and economic growth are particularly related at the end of the year, when we also expect consumers׳ portfolio adjustments to be concentrated.
LanguageEnglish
JournalJournal of Financial Economics
Volume115
Issue number1
Pages136-154
ISSN0304-405X
DOIs
StatePublished - 2015

Keywords

    Cite this

    @article{03636874a3bd4d4f8d4808495e40302e,
    title = "End-of-the-Year Economic Growth and Time-varying Expected Returns",
    abstract = "We show that macroeconomic growth at the end of the year (fourth quarter or December) strongly influences expected returns on risky financial assets, whereas economic growth during the rest of the year does not. We find this pattern for many different asset classes, across different time periods, and for US and international data. We also show that movements in the surplus consumption ratio of Campbell and Cochrane (1999) , a theoretically well-founded measure of time-varying risk aversion linked to macroeconomic growth, influence expected returns stronger during the fourth quarter than the other quarters of the year. Our findings suggest that expected returns, risk aversion, and economic growth are particularly related at the end of the year, when we also expect consumers׳ portfolio adjustments to be concentrated.",
    keywords = "Consumer confidence, End-of-the-year (fourth quarter) economic growth, Expected returns, Surplus consumption ratio",
    author = "M{\o}ller, {Stig V.} and Jesper Rangvid",
    year = "2015",
    doi = "10.1016/j.jfineco.2014.08.006",
    language = "English",
    volume = "115",
    pages = "136--154",
    journal = "Journal of Financial Economics",
    issn = "0304-405X",
    publisher = "Elsevier",
    number = "1",

    }

    End-of-the-Year Economic Growth and Time-varying Expected Returns. / Møller, Stig V.; Rangvid, Jesper.

    In: Journal of Financial Economics, Vol. 115, No. 1, 2015, p. 136-154.

    Research output: Contribution to journalJournal articleResearchpeer-review

    TY - JOUR

    T1 - End-of-the-Year Economic Growth and Time-varying Expected Returns

    AU - Møller,Stig V.

    AU - Rangvid,Jesper

    PY - 2015

    Y1 - 2015

    N2 - We show that macroeconomic growth at the end of the year (fourth quarter or December) strongly influences expected returns on risky financial assets, whereas economic growth during the rest of the year does not. We find this pattern for many different asset classes, across different time periods, and for US and international data. We also show that movements in the surplus consumption ratio of Campbell and Cochrane (1999) , a theoretically well-founded measure of time-varying risk aversion linked to macroeconomic growth, influence expected returns stronger during the fourth quarter than the other quarters of the year. Our findings suggest that expected returns, risk aversion, and economic growth are particularly related at the end of the year, when we also expect consumers׳ portfolio adjustments to be concentrated.

    AB - We show that macroeconomic growth at the end of the year (fourth quarter or December) strongly influences expected returns on risky financial assets, whereas economic growth during the rest of the year does not. We find this pattern for many different asset classes, across different time periods, and for US and international data. We also show that movements in the surplus consumption ratio of Campbell and Cochrane (1999) , a theoretically well-founded measure of time-varying risk aversion linked to macroeconomic growth, influence expected returns stronger during the fourth quarter than the other quarters of the year. Our findings suggest that expected returns, risk aversion, and economic growth are particularly related at the end of the year, when we also expect consumers׳ portfolio adjustments to be concentrated.

    KW - Consumer confidence

    KW - End-of-the-year (fourth quarter) economic growth

    KW - Expected returns

    KW - Surplus consumption ratio

    UR - http://sfx-45cbs.hosted.exlibrisgroup.com/45cbs?url_ver=Z39.88-2004&url_ctx_fmt=info:ofi/fmt:kev:mtx:ctx&ctx_enc=info:ofi/enc:UTF-8&ctx_ver=Z39.88-2004&rfr_id=info:sid/sfxit.com:azlist&sfx.ignore_date_threshold=1&rft.object_id=954921387914&rft.object_portfolio_id=&svc.holdings=yes&svc.fulltext=yes

    U2 - 10.1016/j.jfineco.2014.08.006

    DO - 10.1016/j.jfineco.2014.08.006

    M3 - Journal article

    VL - 115

    SP - 136

    EP - 154

    JO - Journal of Financial Economics

    T2 - Journal of Financial Economics

    JF - Journal of Financial Economics

    SN - 0304-405X

    IS - 1

    ER -