GDP Growth Expectations and Cash-flow Risk Premium

We show that procyclical stocks–those whose cash flows rise with expected economic growth–earn higher average returns than countercyclical stocks. Leveraging nearly 75 years of economist survey data on real GDP growth expectations, we identify economic states while sidestepping model-driven forecast error. GDP forecasts comove with consumption and predict the market return, real GDP growth, and consumption growth. This approach builds on the literatures on both the Intertemporal and Consumption Capital Asset Pricing Models. We document a statistically significant, economically meaningful procyclicality premium that remains robust to standard factor controls.