Global and country-specific business cycle risk in time-varying excess returns on asset markets
AbstractDeviations of national industrial production indexes from trend explain time variation in excess returns on the G7 countries' stock markets. This paper highlights that this finding is driven by a global, common component in the national production gaps. The global component is not a mirror image of the U.S. business cycle. Quite to the contrary, a "rest-ofthe-world" production gap explains time variation in U.S. stock market excess returns while the U.S.-specific production gap does not. However, both U.S.-specific and global gap components explain time-varying excess returns on U.S. bonds. The relative importance of the U.S.-specific risk gap increases with the maturity of bonds.
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Bibliographic InfoPaper provided by Swiss National Bank in its series Working Papers with number 2012-10.
Length: 58 pages
Date of creation: 2012
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More information through EDIRC
bond return; business cycle risk; excess returns; industrial production; predictability; stock return;
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-03 (All new papers)
- NEP-BEC-2012-11-03 (Business Economics)
- NEP-MAC-2012-11-03 (Macroeconomics)
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