Abstract
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.
| Original language | English |
|---|---|
| Publication date | 2012 |
| Number of pages | 50 |
| Publication status | Published - 2012 |
| Event | The 39th European Finance Association Annual Meeting (EFA 2012) - Copenhagen Business School, Frederiksberg, Denmark Duration: 15 Aug 2012 → 18 Aug 2012 Conference number: 39 http://www.efa2012.org/ |
Conference
| Conference | The 39th European Finance Association Annual Meeting (EFA 2012) |
|---|---|
| Number | 39 |
| Location | Copenhagen Business School |
| Country | Denmark |
| City | Frederiksberg |
| Period | 15/08/2012 → 18/08/2012 |
| Internet address |
Cite this
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Fourth-quarter Economic Growth and Time-varying Expected Returns. / Møller, Stig V.; Rangvid, Jesper.
2012. Paper presented at The 39th European Finance Association Annual Meeting (EFA 2012), Frederiksberg, Denmark.Research output: Contribution to conference › Paper › Research › peer-review
TY - CONF
T1 - Fourth-quarter Economic Growth and Time-varying Expected Returns
AU - Møller, Stig V.
AU - Rangvid, Jesper
PY - 2012
Y1 - 2012
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.
KW - Fourth-quarter economic growth
KW - Expected returns
KW - Consumer confidence
KW - Risk compensation
KW - Mispricing
M3 - Paper
ER -