Macroeconomic News in the Cross Section of Asset Growth
32 Pages Posted: 17 Jan 2017 Last revised: 23 Jun 2017
Date Written: June 21, 2017
Firms make forward-looking decisions. We provide evidence that firms’ investment decisions contain news about future aggregate conditions. This information is best extracted by dimension-reduction techniques. The investment-based signal improves upon the widely-used GDP forecasts found in the Survey of Professional Forecasters. We appeal to news-driven business cycle theory to explain our result, suggesting that these investment decisions contain firms’ information about future productivity shocks. This theory also helps us to understand why accounting-based measures of investment reveal the news, while market-based measures of value do not.
Keywords: Gross Domestic Product, Out-Of-Sample, News-Driven Business Cycle, Partial Least Squares, Firm Investment
JEL Classification: M41, G17, E17
Suggested Citation: Suggested Citation