The output gap and expected security returns

Anindya Biswas

Review of Financial Economics, 2014, vol. 23, issue 3, 131-140

Abstract: This paper analyzes the impact of the output gap on market excess returns. The output gap is usually defined as the deviation of output from potential output that is indicated by the trend output. However, this study departs from the common approach of calculating the output gap based on a simple trend line. It uses a flexible data-driven weighting scheme, and it uses only the available information that corresponds to each forecasting origin to derive the output gap. Overall, the proposed output gap is a strong predictor of U.S. market excess returns.

Keywords: Market returns predictability; Output gap; Real-time data; MIDAS regression; Beta-weighting scheme (search for similar items in EconPapers)
JEL-codes: E44 G17 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:revfin:v:23:y:2014:i:3:p:131-140

DOI: 10.1016/j.rfe.2014.04.001

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