Research seminars

The end-of-the-year effect: Global economic growth and expected returns around the world

Finance

Speaker: Jesper Rangvid
Copenhagen Business School

7 May 2015

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We show that global economic growth at the end of the year strongly predicts returns on a wide spectrum of international asset markets, such as global, regional, and individual-country stock markets, foreign exchange, bonds, and commodities. Global economic growth at other times of the year does not predict international returns. Global economic growth at the end of the year, and only at the end of the year, predicts returns both in countries where institutional (end of tax year) and cultural events (New Year) are concentrated at the end of the year, but also in countries where they are not. We find that it is global, and not, e.g., US economic growth, that predicts returns. We also find that global economic growth at the end of the year predicts returns because it predicts shocks to discount rates but not shocks to cash flows. Finally, year-end global economic activity does not predict global stock market uncertainty or business cycle indicators.

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