Economic Conditions and Stock Pricing

Abstract

In this article, we show that the risk premiums associated with key asset allocation risk factors often change significantly over varying stages of the stock market and business cycle. Their findings point out the dangers for portfolio managers setting allocation targets assuming factor risk premiums are constant over time. The findings of this article have implications for investors using stock market sector analysis or business cycle strategies. The results also suggest further research into modeling risk premiums conditioned on economic phases.