Abstract

http://ssrn.com/abstract=1570705
 
 

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Procyclical Stocks Earn Higher Returns


William N. Goetzmann


Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)

Akiko Watanabe


University of Alberta - School of Business; University of Alberta - Department of Finance and Statistical Analysis

Masahiro Watanabe


University of Alberta - School of Business; University of Alberta - Department of Finance and Statistical Analysis

September 20, 2012

AFA 2011 Denver Meetings Paper

Abstract:     
We find that procyclical stocks, whose returns comove with business cycles, earn higher average returns than countercyclical stocks. We use a half century of real GDP growth expectations from economists' surveys to determine forecasted economic states. This approach largely avoids the confounding effects of econometric forecasting model error. The loading on the expected real GDP growth rate is a priced risk measure. A fully tradable, ex-ante portfolio formed on this loading generates a procyclicality premium that is statistically significant, economically large, long-lasting over a few years, and independent of the size, book-to-market, and momentum effects.

Number of Pages in PDF File: 45

Keywords: Procyclical and countercyclical stocks, business cycle, scaled factor model, Livingston Survey, investor expectations

JEL Classification: G12

working papers series


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Date posted: March 15, 2010 ; Last revised: January 27, 2013

Suggested Citation

Goetzmann, William N. and Watanabe, Akiko and Watanabe, Masahiro, Procyclical Stocks Earn Higher Returns (September 20, 2012). AFA 2011 Denver Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1570705 or http://dx.doi.org/10.2139/ssrn.1570705

Contact Information

William N. Goetzmann (Contact Author)
Yale School of Management - International Center for Finance ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-5950 (Phone)
203-432-8931 (Fax)
HOME PAGE: http://viking.som.yale.edu

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Akiko Watanabe
University of Alberta - School of Business ( email )
3-30A Business Building
University of Alberta
Edmonton, Alberta T6G 2R6
Canada
780-492-0385 (Phone)
780-492-3325 (Fax)
HOME PAGE: http://www.bus.ualberta.ca/awatanabe
University of Alberta - Department of Finance and Statistical Analysis ( email )
2-32C Business Building
Edmonton, Alberta T6G 2R6
Canada
HOME PAGE: http://www.bus.ualberta.ca/awatanabe

Masahiro Watanabe
University of Alberta - School of Business ( email )
School of Business - FMS
University of Alberta
Edmonton, Alberta T6G 2R6
Canada
780-492-7343 (Phone)
780-492-3325 (Fax)
HOME PAGE: http://www.ualberta.ca/~masa/
University of Alberta - Department of Finance and Statistical Analysis ( email )
2-32C Business Building
Edmonton, Alberta T6G 2R6
Canada

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