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Idiosyncrasy as a Leading Indicator

Author

Listed:
  • 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.

Suggested Citation

  • Randall Morck & Bernard Yeung & Lu Y. Zhang, 2022. "Idiosyncrasy as a Leading Indicator," NBER Working Papers 30071, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30071
    Note: CF
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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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