End-of-the-year economic growth and time-varying expected returns: a reexamination

Abstract

Møller and Rangvid (2015) report that economic growth at the end of the year is a strong predictor of future stock returns for the post-WWII period, whereas economic growth during the rest of the year does not. Revisiting these results with an extended period 1926-2020, we find that this pattern does not hold. The predictive ability of end-of-the-year economic growth is generally fragile. Out-of-sample analysis shows that the fourth quarter economic growth outperforms the historical average benchmark mainly in the 1970s and the recent financial crisis even for the post-WWII sample.

Keywords: End-of-the-year economic growth, Return predictability, Out-of-sample

JEL Classification: E44, G12, G14