Download This PaperIdiosyncrasy as a Leading Indicator
46 Pages Posted: 27 Dec 2021 Last revised: 16 May 2022
There are 2 versions of this paper
Idiosyncrasy as a Leading Indicator
Idiosyncrasy as a Leading Indicator
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: Suggested Citation
Randall K. Morck
University of Alberta - Department of Finance and Statistical Analysis ( email )
2-32C Business Building
Edmonton, Alberta T6G 2R6
Canada
780-492-5683 (Phone)
780-492-3325 (Fax)
European Corporate Governance Institute (ECGI) ( email )
c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium