Research
Aug 1, 2016
Skewness in Expected Macro Fundamentals and the Predictability of Equity Returns: Evidence and Theory
Abstract
We document that the first and third cross-sectional moments of the distribution of GDP growth rates made by professional forecasters can predict equity excess returns, a finding which is robust to controlling for a large set of well established predictive factors. We show that introducing time-varying skewness in the distribution of expected growth prospects in an otherwise standard endowment economy can substantially increase the model implied equity Sharpe ratios, and produce a large amount of fluctuation in equity risk premia.
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- Keyword(s):
- asset pricing 28
Learn more at:
https://kenaninstitute.unc.edu/publication/skewness-in-expected-macro-fundamentals-and-the-predictability-of-equity-returns-theory-and-evidence/
https://kenaninstitute.unc.edu/publication/skewness-in-expected-macro-fundamentals-and-the-predictability-of-equity-returns-theory-and-evidence/
