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GDP Growth Expectations and Cash-flow Risk Premium

Author

Listed:
  • William N. Goetzmann
  • Akiko Watanabe
  • Masahiro Watanabe

Abstract

We show that procyclical stocks–those whose cash flows rise with expected economic growth–earn higher average returns than countercyclical stocks. Leveraging nearly 75 years of economist survey data on real GDP growth expectations, we identify economic states while sidestepping model-driven forecast error. GDP forecasts comove with consumption and predict the market return, real GDP growth, and consumption growth. This approach builds on the literatures on both the Intertemporal and Consumption Capital Asset Pricing Models. We document a statistically significant, economically meaningful procyclicality premium that remains robust to standard factor controls.

Suggested Citation

  • William N. Goetzmann & Akiko Watanabe & Masahiro Watanabe, 2025. "GDP Growth Expectations and Cash-flow Risk Premium," NBER Working Papers 34402, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:34402
    Note: AP
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    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
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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