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Idiosyncrasy as a Leading Indicator

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  • Morck, Randall
  • Yeung, Bernard
  • Zhang, Lu Y.

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

  • Morck, Randall & Yeung, Bernard & Zhang, Lu Y., 2023. "Idiosyncrasy as a Leading Indicator," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 58(8), pages 3547-3576, December.
    • Handle: RePEc:cup:jfinqa:v:58:y:2023:i:8:p:3547-3576_11
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