Global Economic Growth and Expected Returns Around the World: The End-of-the-Year Effect

Abstract

Global economic growth at the end of the year strongly predicts returns from a wide spectrum of international assets, such as global, regional, and individual-country stocks, FX, and commodities. Global economic growth at other times of the year does not predict international returns. Low growth in the global economy at the end of the year predicts higher returns over the following year. It also predicts the global business cycle. When global economic growth at the end of the year is low, investors expect a worsening of the global business cycle and increase their required returns.

Keywords: End-of-the-year global economic growth, expected returns, international business cycle, in-sample and out-of-sample international return forecasts

JEL Classification: E44, G12, G14