Can Book-to-Market, Size, and Momentum Be Risk Factors that Predict Economic Growth?

Journal of Financial Economics

Posted: 3 Apr 2000

See all articles by Jim Kyung-Soo Liew

Jim Kyung-Soo Liew

Johns Hopkins University - Carey Business School

Maria Vassalou

Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Abstract

We examine the extent to which the profitability of the HML, SMB, and WML trading strategies can be linked to future GDP growth. Using a large cross-section of securities from ten developed markets, we find that the HML and SMB portfolios contain significant information about future GDP growth. The predictive ability of these strategies is to a large degree independent of any information contained in the domestic market factor, which is known to be a leading indicator of economic growth. Even in the presence of popular business cycle variables, HML and SMB retain their ability to predict future economic growth in some of the countries examined. Our results support a risk-based explanation for the performance of the HML and SMB trading strategies. Little evidence was found to support such an explanation in the case of the WML trading strategy.

Note: This is a description of the paper, and not the actual abstract.

JEL Classification: G11, G12, G15

Suggested Citation

Liew, Jim Kyung-Soo and Vassalou, Maria, Can Book-to-Market, Size, and Momentum Be Risk Factors that Predict Economic Growth?. Journal of Financial Economics. Available at SSRN: https://ssrn.com/abstract=199729

Jim Kyung-Soo Liew

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

Maria Vassalou (Contact Author)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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