The Leading Premium

Croce, Mariano (Max) Massimiliano; Marchuk, Tatyana; Schlag, Christian

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The Leading Premium

CEPR Discussion Paper No. DP12631

52 Pages Posted: 29 Jan 2018

See all articles by Mariano (Max) Massimiliano Croce

Mariano (Max) Massimiliano Croce

Finance Department, Bocconi University; Centre for Economic Policy Research (CEPR)

Christian Schlag

Goethe University Frankfurt; Leibniz Institute for Financial Research SAFE

There are 3 versions of this paper

Date Written: January 2018

Abstract

In this paper, we compute conditional measures of lead-lag relationships between GDP growth and industry-level cash-flow growth in the US. Our results show that firms in leading industries pay an average annualized return 4% higher than that of firms in lagging industries. The difference in the returns of leading and lagging firms is priced in the cross section of equity returns, even after we control for a large number of risk factors. This finding can be rationalized in a model in which (a) agents price growth news shocks, and (b) leading industries provide valuable resolution of uncertainty about the growth prospects of lagging industries.

JEL Classification: E32, E44, G10

Suggested Citation: Suggested Citation

Croce, Mariano Massimiliano and Marchuk, Tatyana and Schlag, Christian, The Leading Premium (January 2018). CEPR Discussion Paper No. DP12631, Available at SSRN: https://ssrn.com/abstract=3112235