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TOWER BUILDING AND STOCK MARKET RETURNS

Authors


  • I am very grateful for comments received from Mark Freeman (the referee) and the editors as well as from Erik Theissen and conference and seminar participants in Hamburg (German Finance Association), Hannover (Leibniz University), and Rome (IFABS).

Abstract

Construction starts of skyscrapers predict subsequent U.S. stock returns. The predictive ability exceeds that of alternatives such as the prevailing historical mean, predictions based on dividend ratios, and recently suggested combination forecasts. One explanation for these patterns is that tower building is indicative of overoptimism; alternatively, tower building could help identify periods of low risk premia. I present indirect evidence that is consistent with both explanations.

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