Financial Investment Opportunities and the Macroeconomy
DOI:
https://doi.org/10.1016/1057-0810(91)90046-2Abstract
This paper studies the relation between changes in financial investment oppor- tunities 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 correl- ated 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. 7JzeJournal ofFinance, Vol. XLVI, No. 2 (June 1991), pp. 529-54. (Reprinted with permission of 7?zeJournaZ ofFinance.)
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