Aggregate Investment and Consumption, Earnings Cyclicalities, and Stock Returns

Aggregate investment and consumption have heterogeneous cyclical implications on firm-level earnings and the cyclical earnings patterns are associated with future abnormal returns. Earnings cyclicalities give rise to an information channel through which anticipated changes in investment and consumption have different effects on firm performance. Further, the cyclical earnings exposures have significant synchronicity with other macros known to predict future returns in line with economic theory. However, the cyclicality premium is distinct from macro premia measured by return exposures to the macros. Overall, our paper highlights an important role of earnings cyclicalities in predicting firm fundamentals and stock returns