International stock return predictability: on the role of the United States in bad and good times

ABSTRACT

In this article, we document the asymmetric role that the US stock market plays in the international predictability of excess stock returns during recession and expansion periods. Most of the positive evidence accrues during the periods of recessions in the United States. During the expansions, there is only a limited evidence supporting the importance of lagged US returns in predictability of stock returns in 10 industrialized countries.

KEYWORDS:

• Excess stock return
• US recessions and expansions
• asymmetric response

JEL CLASSIFICATION:

• C22
• G12
• G14

Acknowledgement

Useful comments from participants at the KOF Brown Bag Seminar (ETH Zurich, Switzerland), the BICEPS Research Seminar (Riga, Latvia) and the Research Seminar at the Department of Economics (Henan University, Kaifeng, China) are gratefully acknowledged. We also are grateful to Dave Rapach for providing the data and code on his website allowing us to replicate the results of Rapach et al. (2013). Computations were produced using the R language (http://cran.r-project.org/). The usual disclaimer applies.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ http://sites.slu.edu/rapachde/home/research.