Small business performance and stock return predictability.

摘要

I find that growth in local proprietary income is positively correlated with the future stock returns and cash flows of public firms headquartered nearby. This predictability is strongest for firms in high-technology industries, for firms with more localized business operations, and when proprietor financial constraints are relaxed as measured by changes in aggregate housing prices. Proprietary income growth also predicts aggregate stock prices. There exists a common proprietary income growth factor across economic regions which pro-cyclically predicts aggregate market returns. This factor is highly correlated with the Silicon Valley proprietary income growth rate—which itself is a stronger predictor of aggregate returns than the dividend yield or CAY.