Financial Investment Opportunities and the Macroeconomy

Financial Investment Opportunities and the Macroeconomy ABSTRACT This paper studies the relation between changes in financial investment opportunities and changes in the macroeconomy. States variables such as the lagged production growth rate, the default premium, the term premium, the short‐term interest rate and the market dividend‐price ratio are shown to be indicators of recent and future economic growth. Further, the market excess return is negatively correlated with recent economic growth and positively correlated with expected future economic growth. These results offer straightforward interpretations of recent evidence on the forecasts of the market excess return by state variable via their forecasts on the macroeconomy. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Financial Investment Opportunities and the Macroeconomy

The Journal of Finance, Volume 46 (2) – Jun 1, 1991

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Publisher
Wiley
Copyright
1991 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/j.1540-6261.1991.tb02673.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT This paper studies the relation between changes in financial investment opportunities and changes in the macroeconomy. States variables such as the lagged production growth rate, the default premium, the term premium, the short‐term interest rate and the market dividend‐price ratio are shown to be indicators of recent and future economic growth. Further, the market excess return is negatively correlated with recent economic growth and positively correlated with expected future economic growth. These results offer straightforward interpretations of recent evidence on the forecasts of the market excess return by state variable via their forecasts on the macroeconomy.

Journal

The Journal of FinanceWiley

Published: Jun 1, 1991

References

  • The term structure as a predictor of real activity
    Estrella, Estrella; Hardouvelis, Hardouvelis
  • Stock returns, expected returns, and real activity
    Fama, Fama
  • Capital asset prices: A theory of market equilibrium under conditions of risk
    Sharpe, Sharpe

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