Stock returns and output growth in emerging and advanced economies |
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| Affiliation: | 1. Università Cattolica del Sacro Cuore, Department of Statistical Sciences, Largo Gemelli, 1, 20136 Milan, Italy;2. Università della Svizzera Italiana, InterDisciplinary Institute of Data Science, Switzerland;3. Università degli Studi dell''Insubria, Department of Sciences and High Technology, Italy;4. Università Commerciale Luigi Bocconi, Department of Decision Sciences and Bocconi Institute for Data Science and Analytics (BIDSA), Italy;1. Edinburgh Business School, Heriot-Watt University, Edinburgh, EH14 4AS, United Kingdom;2. Cairo University Business School, Egypt;3. School of Business, Jiangnan University, China;1. Department of Finance, Kozminski University, ul. Jagiellońska 57/59, 03-301, Warsaw, Poland;2. Department of Financial Management, University of Pretoria, Private Bag x20, Hatfield, 0028, Pretoria, South Africa;3. Department of Finance and Tax, University of Cape Town, Rondebosch, 7700, Cape Town, South Africa;4. Aberdeen Business School, Robert Gordon University, Garthdee Road, Aberdeen, AB10 7QE, Scotland, United Kingdom;5. Department of Capital Market and Investments, Faculty of Economics and Sociology, University of Łódź, ul. POW 3/5, 90-225 Łódź, Poland |
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| Abstract: | This paper studies the correlation between output growth and lagged stock returns in a panel of emerging market economies and advanced economies. It finds that the proportion of countries in which this correlation is significant is the same for emerging market economies as it is for advanced economies using yearly data, and somewhat lower using quarterly data. Asset prices therefore seem to contain valuable information to forecast output also in emerging market economies. Moreover, the paper finds that the strength of the correlation between output growth and lagged stock returns is significantly related to a number of stock market characteristics, such as a high market capitalization to GDP ratio and, less robustly, English legal origin and the number of listed domestic companies and initial public offerings. |
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