Aggregate expected investment growth and stock market returns

Jun Li, Huijun Wang and Jianfeng Yu

Journal of Monetary Economics, 2021, vol. 117, issue C, 618-638

Abstract: A bottom-up measure of aggregate investment plans, namely, aggregate expected investment growth (AEIG) can negatively predict market returns. At the one-year horizon, the adjusted in-sample R2 is 18.2% and the out-of-sample R2 is 14.4%. The return predictive power is robust after controlling for standard macroeconomic return predictors and proxies for investor sentiment. Further analyses suggest that the predictive ability of AEIG is at least partially driven by the time-varying risk premium. These findings lend support to neoclassical models with investment lags.

Keywords: Investment plan; Investment lags; Time-varying risk premium; Investor sentiment; Stock market prediction (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:117:y:2021:i:c:p:618-638

DOI: 10.1016/j.jmoneco.2020.03.016

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