International seminar on macroeconomics. Stock returns and the business cycle: a structural approach
Canova, Fabio and De Nicolo, Gianni (1995) International seminar on macroeconomics. Stock returns and the business cycle: a structural approach. European Economic Review, 39, (5), 981-1015. (doi:10.1016/0014-2921(95)00017-8).
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Description/Abstract
This paper analyzes the relationship between stock returns and real activity from the point of view of a general equilibrium, multicountry model of the business cycle. The empirical evidence suggests that there is a relationship between domestic output growth and domestic stock returns which becomes stronger when foreign influences are considered. We study the properties of a model with two sources of disturbances and three mechanisms of transmission across countries. We show that the model can best reproduce the actual data when technology shocks drive the cycle and when there is a common international component to the shocks. The strength of association between stock returns and output growth depends on how future expected cash flows respond to the disturbances. International linkages emerge because foreign variables contain information about the future path of domestic variables.
| Item Type: | Article |
|---|---|
| ISSNs: | 0014-2921 (print) |
| Related URLs: | |
| Keywords: | transmission, business cycles, international stock returns, financial markets |
| Subjects: | H Social Sciences > HG Finance |
| Divisions: | University Structure - Pre August 2011 > School of Social Sciences > Economics |
| Item ID: | 32933 |
| Date Deposited: | 11 Dec 2007 |
| Last Modified: | 02 Mar 2012 13:28 |
| Contributors: | Canova, Fabio (Author) De Nicolo, Gianni (Author) |
| Date: | May 1995 |
| Status: | Published |
| URI: | http://eprints.soton.ac.uk/id/eprint/32933 |
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