Working Paper: CEPR ID: DP12631
Authors: Mariano Massimiliano Croce; Tatyana Marchuk; Christian Schlag
Abstract: In this paper, we compute conditional measures of lead-lag relationships between GDPgrowth and industry-level cash-flow growth in the US. Our results show that firms inleading industries pay an average annualized return 4% higher than that of firms inlagging industries. The difference in the returns of leading and lagging firms is pricedin the cross section of equity returns, even after we control for a large number of riskfactors. This finding can be rationalized in a model in which (a) agents price growthnews shocks, and (b) leading industries provide valuable resolution of uncertainty aboutthe growth prospects of lagging industries.
Keywords: No keywords provided
JEL Codes: G10; E32; E44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| GDP growth (O49) | industry-level cash flow growth (D25) |
| leading industries (L69) | lagging industries cash flow growth (D25) |
| leading industries (L69) | higher average annualized return (G11) |
| ll factor (F20) | pricing in industry portfolio returns (G12) |
| ll factor (F20) | model-implied stochastic discount factor (G19) |