Davids, Goliaths, and Business Cycles

65 Pages Posted: 3 Oct 2012 Last revised: 26 May 2017

See all articles by Jefferson Duarte

Jefferson Duarte

Rice University

Nishad Kapadia

Tulane University - Finance & Economics

Date Written: December 1, 2015


We show that a simple, intuitive variable, GVD (Goliath versus David) reflects time-variation in discount rates related to changes in aggregate business conditions. GVD is the annual change in the weight of the largest 250 firms in the aggregate stock market, and is motivated by research that shows that small firms are more severely impacted than large firms by economic shocks due to differences in access to external finance. We find that GVD is the best single predictor of market returns out-of-sample among traditional predictors, predicting quarterly market returns with an out-of-sample R2 of 6.3% in the 1976--2011 evaluation period.

Keywords: Business cycles, financial constraints, market returns, investment growth

JEL Classification: E44, G12

Suggested Citation

Duarte, Jefferson and Kapadia, Nishad, Davids, Goliaths, and Business Cycles (December 1, 2015). Available at SSRN: https://ssrn.com/abstract=2155000 or http://dx.doi.org/10.2139/ssrn.2155000

Jefferson Duarte (Contact Author)

Rice University ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States
713.3486137 (Phone)

Nishad Kapadia

Tulane University - Finance & Economics ( email )

A.B. Freeman School of Business
7 McAlister Drive
New Orleans, LA 70118
United States
504-314-7454 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics