Macroeconomics matter: Leading economic indicators and the cross-section of global stock returns

Huaigang Long, Adam Zaremba, Wenyu Zhou and Elie Bouri

Journal of Financial Markets, 2022, vol. 61, issue C

Abstract: Leading economic indicators assist in forecasting future business conditions. Can they also predict aggregate stock returns? To answer this question, we examine six decades of data from 39 countries. Short-term changes in the composite leading indicator (CLI) positively correlate with future stock returns in the cross-section. The quintile of markets with the highest CLI increase outperforms the quintile with the lowest CLI change by 1.43% per month. The predictive power of the CLI survives multiple robustness checks and cannot be absorbed by established risk factors. Our findings imply an exploitable investment strategy that can be pursued with exchange-traded funds.

Keywords: Leading economic indicators; The cross-section of stock returns; International stock markets; Return predictability; Country equity indices (search for similar items in EconPapers)
JEL-codes: E37 G12 G14 G15 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:61:y:2022:i:c:s1386418122000295

DOI: 10.1016/j.finmar.2022.100736

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