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Idiosyncrasy as a Leading Indicator

Published online by Cambridge University Press:  28 November 2022

Randall Morck ,
Bernard Yeung  and
Lu Y. Zhang Open the ORCID record for Lu Y. Zhang [Opens in a new window]
Randall Morck
Affiliation:
University of Alberta School of Business, NBER, and Asian Bureau of Finance and Economics Research rmorck@ualberta.ca
Bernard Yeung
Affiliation:
National University of Singapore Business School byeung@nus.edu.sg
Lu Y. Zhang*
Affiliation:
Toronto Metropolitan University Ted Rogers School of Management
*
lu.zhang@torontomu.ca (corresponding author)
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Abstract

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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.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 58 , Issue 8 , December 2023 , pp. 3547 - 3576
Creative Commons
Creative Common License - CCCreative Common License - BYCreative Common License - NCCreative Common License - SA
This is an Open Access article, distributed under the terms of the Creative Commons Attribution-NonCommercial-ShareAlike licence (https://creativecommons.org/licenses/by-nc-sa/4.0), which permits non-commercial re-use, distribution, and reproduction in any medium, provided the same Creative Commons licence is used to distribute the re-used or adapted article and the original article is properly cited. The written permission of Cambridge University Press must be obtained prior to any commercial use.
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank Jennifer Conrad (the editor), Gill Segal (the referee), and David Vines for their helpful comments and suggestions.

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