We find that procyclical stocks, whose returns are consistent with business cycles, earn higher average returns than countercyclical stocks. We use nearly three quarters of a century of real GDP growth expectations from economist surveys to derive forecasted economic conditions. This approach largely avoids the confounding effects of economic forecasting model error. The loading of the expected rate of real GDP growth is a measure of the price of risk. A fully traded portfolio, once in this loading generates a procyclicality premium that is statistically significant, economically large, durable over several years, and independent of size, booking-to-market, and momentum effects.
That’s according to a recent NBER working paper by William N. Goetzmann, Akiko Watanabe, and Masahiro Watanabe.
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