Citation

Discussion Paper Details

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Title: Can Book-to-Market, Size and Momentum Be Risk Factors That Predict Economic Growth

Author(s): Jimmy Liew and Maria Vassalou

Publication Date: June 1999

Keyword(s): Book-to-Market, GDP growth, Momentum and Trading Strategies

Programme Area(s): Financial Economics

Abstract: We examine the extent to which the profitability of the HML, SMB, and WML trading strategies can be linked to future GDP growth. Using a large cross-section of securities from ten developed markets, we find that the HML and SMB portfolios contain significant information about future GDP growth. The predictive ability of these strategies is to a large degree independent of any information contained in the domestic market factor, which is known to be a leading indicator of economic growth. Even in the presence of popular business cycle variables, HML and SMB retain their ability to predict future economic growth in some of the countries examined. Our results support a risk-based explanation for the performance of the HML and SMB trading strategies. Little evidence was found to support such an explanation in the case of the WML trading strategy.

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Bibliographic Reference

Liew, J and Vassalou, M. 1999. 'Can Book-to-Market, Size and Momentum Be Risk Factors That Predict Economic Growth'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2180