IDEAS home Printed from https://ideas.repec.org/a/cup/jfinqa/v52y2017i06p2429-2460_00.html
   My bibliography  Save this article

Davids, Goliaths, and Business Cycles

Author

Listed:
  • Duarte, Jefferson
  • Kapadia, Nishad

Abstract

We show that a simple, intuitive variable, Goliath versus David (GVD), reflects time variation in discount rates related to changes in aggregate business conditions. GVD is the annual change in the weight of the largest 250 firms in the aggregate stock market and is motivated by research that shows that small firms are more severely impacted than large firms by economic shocks due to differences in access to external finance. We find that GVD is the best single predictor of out-of-sample market returns among traditional predictors, predicting quarterly market returns with an out-of-sample R 2 of 6.3% in the 1976–2011 evaluation period.

Suggested Citation

  • Duarte, Jefferson & Kapadia, Nishad, 2017. "Davids, Goliaths, and Business Cycles," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(6), pages 2429-2460, December.
    • Handle: RePEc:cup:jfinqa:v:52:y:2017:i:06:p:2429-2460_00
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S0022109017000783/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bao, Jack & Hou, Kewei & Zhang, Shaojun, 2023. "Systematic default and return predictability in the stock and bond markets," Journal of Financial Economics, Elsevier, vol. 149(3), pages 349-377.
    2. Sebastian A. Gehricke & Jin E. Zhang, 2020. "Modeling VXX under jump diffusion with stochastic long‐term mean," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(10), pages 1508-1534, October.
    3. David R. Haab & Thomas Nitschka, 2019. "What Goliaths and Davids among Swiss firms tell us about expected returns on Swiss asset markets," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 155(1), pages 1-17, December.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:jfinqa:v:52:y:2017:i:06:p:2429-2460_00. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/jfq .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.