Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
966489 | Journal of Monetary Economics | 2015 | 16 Pages |
Abstract
A central challenge in asset pricing is the weak connection between stock returns and observable economic fundamentals. We provide evidence that this connection is stronger than previously thought. We use a modified version of the Bry-Boschan algorithm to identify long-run swings in the stock market. We call these swings long-run bull and bear episodes. We find that there is a high correlation between stock returns and fundamentals across bull and bear episodes. This correlation is much higher than the analogous time-series correlations. We show that several asset pricing models cannot simultaneously account for the low time-series and high episode correlations.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Rui Albuquerque, Martin Eichenbaum, Dimitris Papanikolaou, Sergio Rebelo,