Global and country-specific business cycle risk in time-varying excess returns on asset markets

Thomas Nitschka

No 2012-10, Working Papers from Swiss National Bank

Abstract: Deviations of national industrial production indexes from trend explain time variation in excess returns on the G7 countries' stock markets. This paper highlights that this finding is driven by a global, common component in the national production gaps. The global component is not a mirror image of the U.S. business cycle. Quite to the contrary, a "rest-ofthe-world" production gap explains time variation in U.S. stock market excess returns while the U.S.-specific production gap does not. However, both U.S.-specific and global gap components explain time-varying excess returns on U.S. bonds. The relative importance of the U.S.-specific risk gap increases with the maturity of bonds.

Keywords: bond return; business cycle risk; excess returns; industrial production; predictability; stock return (search for similar items in EconPapers)
JEL-codes: E32 F44 G15 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2012
New Economics Papers: this item is included in nep-bec and nep-mac
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:snb:snbwpa:2012-10

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