DP3057 News Related to Future GDP Growth as a Risk Factor in Equity Returns

Author(s): Maria Vassalou
Publication Date: November 2001
Keyword(s): asset pricing, future GDP, GMM, news
JEL(s): G12
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3057

A model that includes a factor that captures news related to future Gross Domestic Product (GDP) growth along with the market factor can explain the cross-section of equity returns about as well as the Fama-French model can. Furthermore, the Fama-French factors HML and SMB appear to contain mainly news related to future GDP growth. When news related to future GDP growth is present in the asset-pricing model, HML and SMB lose their ability to explain the cross-section.