Working Paper: NBER ID: w3212
Authors: John H. Cochrane
Abstract: The investment return is defined as the real return that results from marginally increasing investment at date r, and then reaping the extra output and decreasing investment at date t+1 to leave the production plan for other dates unchanged. This paper constructs investment returns from investment data and a production function, and compares investment returns to stock returns, in order to explain forecasts of stock returns by business cycle related variables, and to explain forecasts of future economic activity by stock returns.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Investment Returns (G11) | Stock Returns (G12) |
| Stock Returns (G12) | Investment Returns (G11) |
| Lagged Returns and Business Cycle Variables (E32) | Stock Returns (G12) |
| Investment Growth (G31) | Investment Returns (G11) |
| Value-Weighted Returns (G12) | GNP Growth and Investment to Capital Ratios (E22) |