Economic Cycles and Expected Stock Returns

Alessandro Beber (), Michael Brandt and Maurizio Luisi

No 9528, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: Macroeconomic uncertainty; State of the economy; Stock market predictability (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2013-06
New Economics Papers: this item is included in nep-for and nep-mac
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