Idiosyncrasy as a Leading Indicator

46 Pages Posted: 27 Dec 2021 Last revised: 16 May 2022

See all articles by Randall Morck

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Asian Bureau of Finance and Economic Research

Bernard Yin Yeung

National University of Singapore - Business School

Lu Y. Zhang

Toronto Metropolitan University

Multiple version iconThere are 2 versions of this paper

Date Written: May 16, 2022

Abstract

Disequilibrating macro shocks affect different firms' prospects differently, increasing idiosyncratic variation in forward-looking stock returns before affecting economic growth. Consistent with most such shocks from 1947 to 2020 enhancing productivity, increased idiosyncratic stock return variation forecasts next-quarter real GDP growth, industrial production growth, and consumption growth both in-sample and out-of-sample. These effects persist after controlling for other leading economic indicators.

Keywords: Stock returns idiosyncrasy, business cycle, idiosyncratic variation

JEL Classification: E32, E44, G01, G14, G41

Suggested Citation

Morck, Randall K. and Yeung, Bernard Yin and Zhang, Lu, Idiosyncrasy as a Leading Indicator (May 16, 2022). Available at SSRN: https://ssrn.com/abstract=3992778 or http://dx.doi.org/10.2139/ssrn.3992778

Randall K. Morck

University of Alberta - Department of Finance and Statistical Analysis ( email )

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Bernard Yin Yeung

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Lu Zhang (Contact Author)

Toronto Metropolitan University ( email )

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