A2081
Title: Business cycle co-movement and stock market risk premiums over 145 years
Authors: Ryuta Sakemoto - Hokkaido University (Japan) [presenting]
Abstract: The aim is to investigate whether individual and global output gaps are associated with expected stock market returns using long-run data covering more than 145 years. The results show that the output gap common factor predicts expected returns better than individual output gaps in both the pre- and post-World War II periods. Moreover, a positive output gap common factor shock causes negative stock market returns, while a negative stock market shock does not lead to an increase in the output gap common factor, suggesting that the output gap common factor acts as an exogenous shock. Finally, the output gap common factor predicts stock market excess returns in both periods within an out-of-sample context.
