The Leading Premium

Abstract

In this paper, we consider conditional measures of lead-lag relations between aggregate growth and industry-level cash flow growth in the United States. Our results show that firms in leading industries pay an average annualized return 3.6 % higher than that of firms in lagging industries. Using both time-series and cross-sectional tests, we estimate an annual pure timing premium ranging from 1.2% to 1.7 %⁠. This finding can be rationalized in a model in which (a) agents price growth news shocks, and (b) leading industries provide valuable resolution of uncertainty about the growth prospects of lagging industries.

Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.