The Leading Premium

Tatyana Marchuk, Christian Schlag and Mariano Croce
Additional contact information
Tatyana Marchuk: Goethe University Frankfurt
Christian Schlag: Goethe University
Mariano Croce: University of North Carolina at Chapel H

No 1251, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: In this paper, we compute conditional measures of lead-lag relationships between GDP growth and industry-level cash-flow growth in the US. Results show that firms in leading industries pay an average annualized return 4% higher than that of firms in lagging industries. The difference in the returns of leading and lagging firms is priced in the cross section of equity returns, even after we adjust for the Fama-French three-factor model. This finding can be rationalized in a model in which (a) agents price growth news shocks, and (b) leading industries provide valuable resolution of uncertainty about the growth prospects of lagging industries.

Date: 2017
New Economics Papers: this item is included in nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed017:1251

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