Aggregate expected investment growth and stock market returns

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    Author
    Li, J; Wang, H; Yu, J
    Date
    2021
    Source Title
    Journal of Monetary Economics
    Publisher
    Elsevier
    University of Melbourne Author/s
    Wang, Huijun
    Affiliation
    Finance
    Metadata
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    Document Type
    Journal Article
    Citations
    Li, J., Wang, H. & Yu, J. (2021). Aggregate expected investment growth and stock market returns. Journal of Monetary Economics, Forthcoming, https://doi.org/10.1016/j.jmoneco.2020.03.016.
    Access Status
    Access this item via the Open Access location
    URI
    http://hdl.handle.net/11343/254059
    DOI
    10.1016/j.jmoneco.2020.03.016
    Open Access URL
    https://www.econstor.eu/bitstream/10419/190229/1/adbi-wp808.pdf
    Abstract
    A bottom-up measure of aggregate investment plans, namely, aggregate expected investment growth (AEIG) can negatively predict market returns. At the one-year horizon, the adjusted in-sample R2 is 18.2% and the out-of-sample R2 is 14.4%. The return predictive power is robust after controlling for standard macroeconomic return predictors and proxies for investor sentiment. Further analyses suggest that the predictive ability of AEIG is at least partially driven by the time-varying risk premium. These findings lend support to neoclassical models with investment lags.

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