Discussion paper

DP12631 The Leading Premium

In this paper, we compute conditional measures of lead-lag relationships between GDP
growth and industry-level cash-flow growth in the US. Our results show that firms in
leading industries pay an average annualized return 4% higher than that of firms in
lagging industries. The difference in the returns of leading and lagging firms is priced
in the cross section of equity returns, even after we control for a large number of risk
factors. This finding can be rationalized in a model in which (a) agents price growth
news shocks, and (b) leading industries provide valuable resolution of uncertainty about
the growth prospects of lagging industries.

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Citation

Croce, M and T Marchuk (2018), ‘DP12631 The Leading Premium‘, CEPR Discussion Paper No. 12631. CEPR Press, Paris & London. https://cepr.org/publications/dp12631