The Cyclical Component of US Asset Returns.pdf.pdf' (324.1 kB)
The Cyclical Component of US Asset Returns
journal contribution
posted on 2009-09-01, 00:00 authored by David K. Backus, Bryan R. Routledge, Stanley E. ZinWe show that equity returns, the term spread, and excess returns on a broad range of assets
are positively correlated with future economic growth. The common tendency for excess
returns to lead the business cycle suggests a macroeconomic factor in the cyclical behavior of
asset returns. We construct an exchange economy that illustrates how this might work. Its
important ingredients are recursive preferences, stochastic volatility in consumption growth,
and dynamic interaction between volatility and growth.