Working Paper: NBER ID: w25633
Authors: M. Max Croce; Tatyana Marchuk; Christian Schlag
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. Using both time series and cross sectional tests, we estimate an annual timing premium ranging from 1.5% to 2%. 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.
Keywords: lead-lag relationships; GDP growth; industry-level cash flow; stock returns; timing premium
JEL Codes: G11; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Leading industries cash flow growth (O14) | Lagging industries cash flow growth (D25) |
| Leading industries cash flow growth (O14) | Higher average annualized return for leading firms (G17) |
| Timing premium from advance information (C41) | Higher equity yield for leading firms (G12) |
| Lagging industries cash flow growth (D25) | Lower average annualized return for lagging firms (L25) |