Idiosyncrasy as A Leading Indicator

Abstract

Disequilibrating macro shocks affect different firms' prospects differently, increasing idiosyncratic variation in forward-looking stock returns before affecting economic growth. Consistent with most such shocks from 1947 to 2020 enhancing productivity, increased idiosyncratic stock return variation forecasts next-quarter real GDP growth, industrial production growth, and consumption growth both in-sample and out-of-sample. These effects persist after controlling for other leading economic indicators.

The article, Idiosyncrasy as A Leading Indicator, co-authored by Randall Morck is a forthcoming publication in the Journal of Financial and Qualitative Analysis.

Randall Morck is from a blue-collar Alberta family. He received scholarships to earn a summa cum laude BSc in Applied Mathematics and Economics from Yale and a PhD in Economics from Harvard, and now holds the Jarislowsky endowed chair in Finance at the Alberta School of Business and is Canada’s most highly cited economist. His research, referenced over 47,000 times by other researchers, helped found the field of Corporate Governance and advance our understanding of corporate finance, stock markets, business history, international business, and political economy. He has advised governments, central banks, and multilateral institutions on these issues. He is a Research Associate at the prestigious National Bureau of Economic Research in Cambridge Massachusetts and Vice-President of the Singapore-based Asian Bureau of Finance and Economics Research.