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Growth Expectations, Dispersion of Beliefs and the Cross-Section of Stock Returns

Koch, Simon Ingo LU (2016) NEKN02 20161
Department of Economics
Abstract
The present study investigates whether the mean and the standard deviation of real GDP growth forecasts from the ECB Survey of Professional Forecasters (SPF) can help to explain the cross-sectional variation of expected returns in the German stock market. The expected real GDP growth from the SPF can be interpreted as a proxy for expected business conditions, whereas the cross-sectional dispersion of these expectations may serve as a proxy for macroeconomic uncertainty. I find support for the hypothesis that growth expectations and macroeconomic uncertainty are highly correlated and hence should be measured simultaneously to circumvent a potential omitted variable bias. The overall results of my asset-pricing tests provide more evidence... (More)
The present study investigates whether the mean and the standard deviation of real GDP growth forecasts from the ECB Survey of Professional Forecasters (SPF) can help to explain the cross-sectional variation of expected returns in the German stock market. The expected real GDP growth from the SPF can be interpreted as a proxy for expected business conditions, whereas the cross-sectional dispersion of these expectations may serve as a proxy for macroeconomic uncertainty. I find support for the hypothesis that growth expectations and macroeconomic uncertainty are highly correlated and hence should be measured simultaneously to circumvent a potential omitted variable bias. The overall results of my asset-pricing tests provide more evidence for a premium associated with expected real GDP growth than for a premium on the macroeconomic uncertainty factor, however, the results are to some extent contradicting and might be influenced by multicollinearity. (Less)
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author
Koch, Simon Ingo LU
supervisor
organization
course
NEKN02 20161
year
type
H1 - Master's Degree (One Year)
subject
keywords
Growth expectations, dispersion of beliefs, macroeconomic uncertainty, cross-section of stock returns, omitted variable bias, multicollinearity
language
English
id
8878671
date added to LUP
2016-06-13 14:13:00
date last changed
2016-06-13 14:13:00
@misc{8878671,
  abstract     = {The present study investigates whether the mean and the standard deviation of real GDP growth forecasts from the ECB Survey of Professional Forecasters (SPF) can help to explain the cross-sectional variation of expected returns in the German stock market. The expected real GDP growth from the SPF can be interpreted as a proxy for expected business conditions, whereas the cross-sectional dispersion of these expectations may serve as a proxy for macroeconomic uncertainty. I find support for the hypothesis that growth expectations and macroeconomic uncertainty are highly correlated and hence should be measured simultaneously to circumvent a potential omitted variable bias. The overall results of my asset-pricing tests provide more evidence for a premium associated with expected real GDP growth than for a premium on the macroeconomic uncertainty factor, however, the results are to some extent contradicting and might be influenced by multicollinearity.},
  author       = {Koch, Simon Ingo},
  keyword      = {Growth expectations,dispersion of beliefs,macroeconomic uncertainty,cross-section of stock returns,omitted variable bias,multicollinearity},
  language     = {eng},
  note         = {Student Paper},
  title        = {Growth Expectations, Dispersion of Beliefs and the Cross-Section of Stock Returns},
  year         = {2016},
}