Is it really worth it?

Sammanfattning: Previous research shows that there exists a procyclicality premium in some large economies like the U.S. However, this study investigates if a procyclicality premium is present in a small open economy like Sweden as well as in some developed countries around the world due to the size of the Swedish economy. The study investigates the monthly excess return of a portfolio based on Sweden and on a portfolio based on developed countries during a 10-year period, between the 1st of January 2010 and 1st of January 2020. Following the methodology of previous scholars to answer the purpose of the presence of a procyclicality premium the Fama and Macbeth 2-stage regression is implemented for each portfolio. The result of the paper indicates that there is no significant procyclicality premium in the Swedish market, even though the business cycle factor is created from Swedish stocks. However, the Swedish business cycle factor is statistically significant for the portfolio based on developed countries using both Fama and French 3 and 5 risk factors, respectively. This present evidence proves that the business cycle in Sweden is correlated with the business cycles of other developed countries.