Working Paper: NBER ID: w30071
Authors: Randall Morck; Bernard Yeung; Lu Y Zhang
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: idiosyncratic stock returns; macroeconomic growth; disequilibrating shocks; forecasting
JEL Codes: E32; E44; G01; G14; G41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher idiosyncratic stock return variance (G40) | new information about firms' prospects (D84) |
| idiosyncratic stock return variance (C58) | next-quarter real GDP growth (E20) |
| idiosyncratic stock return variance (C58) | industrial production growth (L16) |
| idiosyncratic stock return variance (C58) | consumption growth (E20) |
| idiosyncratic stock return variance (C58) | household consumption (D10) |
| idiosyncratic stock return variance (C58) | intangible investments (E22) |
| idiosyncratic stock return variance (C58) | productivity measures (E23) |
| idiosyncratic stock return variance (C58) | economic growth indicators (O49) |