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Can Book-to-Market, Size and Momentum Be Risk Factors that Predict Economic Growth?

Author

Listed:
  • Liew, J.
  • Vassalou, M.

Abstract

We test whether the profitability of HML, SMB, and WML can be linked to future GDP growth. Using data from ten countries, we find that HML and SMB contain significant information about future GDP growth. This information is to a large degree independent of that in the market factor. Even in the presence of popular business cycle variables, HML and SMB retain their ability to predict future economic growth in some countries. Our results support a risk-based explanation for the performance of HML and SMB. Little evidence was found to support such an explanation in the case of WML.

Suggested Citation

  • Liew, J. & Vassalou, M., 1999. "Can Book-to-Market, Size and Momentum Be Risk Factors that Predict Economic Growth?," Papers 99-11, Columbia - Graduate School of Business.
    • Handle: RePEc:fth:colubu:99-11
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    Citations

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    Cited by:

    1. John H. Cochrane, 1999. "New facts in finance," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 23(Q III), pages 36-58.
    2. Anthony W. Lynch, 2000. "Portfolio Choice and Equity Characteristics: Characterizing the Hedging Demands Induced by Return Predictability," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-073, New York University, Leonard N. Stern School of Business-.
    3. Shahrin Saaid Shaharuddin & Wee-Yeap Lau & Tien-Ming Yip, 2017. "Dynamic Linkages between Newly Developed Islamic Equity Style Indices: Is Growth Style More Influential Than Value Style?," Capital Markets Review, Malaysian Finance Association, vol. 25(2), pages 49-64.
    4. Massa, Massimo & Locarno, Alberto, 2005. "Monetary Policy Uncertainty and the Stock Market," CEPR Discussion Papers 4828, C.E.P.R. Discussion Papers.
    5. Qi J Zhang & Peter Hopkins & Stephen Satchell & Robert Schwob, 2009. "The link between macro-economic factors and style returns," Journal of Asset Management, Palgrave Macmillan, vol. 10(5), pages 338-355, December.
    6. Wilhelm Berghorn, 2015. "Trend momentum," Quantitative Finance, Taylor & Francis Journals, vol. 15(2), pages 261-284, February.
    7. Wilhelm Berghorn & Martin T. Schulz & Markus Vogl & Sascha Otto, 2021. "Trend Momentum II: Driving Forces of Low Volatility and Momentum," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 12(3), pages 300-319, May.
    8. Iihara, Yoshio & Kato, Hideaki Kiyoshi & Tokunaga, Toshifumi, 2004. "The winner-loser effect in Japanese stock returns," Japan and the World Economy, Elsevier, vol. 16(4), pages 471-485, December.
    9. Seung Woog (Austin) Kwag & Sang Whi Lee, 2012. "Innovative value indicators: Firm specific versus macroeconomic," Journal of Asset Management, Palgrave Macmillan, vol. 13(5), pages 339-347, October.

    More about this item

    Keywords

    ECONOMIC GROWTH ; MARKET ; RISK;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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