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Economic Cycles and Expected Stock Returns

Author

Listed:
  • Beber, Alessandro
  • Brandt, Michael
  • Luisi, Maurizio

Abstract

We construct daily real-time indices capturing the public information on realized and anticipated economic activity. The one-month change in realized fundamentals predicts US stock returns across horizons with strongest results between a month and a quarter. The information in anticipated fundamentals that is orthogonal to the realized data predicts returns even more strongly particularly at longer horizons up to two quarters. Splitting the sample into times of high versus low uncertainty, as measured by the cross-sectional dispersion of economist forecasts, we show that the predictability is largely concentrated in high-uncertainty times. Finally, extending the analysis internationally, we find similar results that are curiously much stronger when US data are used as predictors than global composites or local data.

Suggested Citation

  • Beber, Alessandro & Brandt, Michael & Luisi, Maurizio, 2013. "Economic Cycles and Expected Stock Returns," CEPR Discussion Papers 9528, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:9528
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    References listed on IDEAS

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    More about this item

    Keywords

    Macroeconomic uncertainty; State of the economy; Stock market predictability;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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