Stock returns and real activity: the dynamic conditional lagged correlation approach

Lyócsa, Štefan and Baumöhl, Eduard and Výrost, Tomáš (2012): Stock returns and real activity: the dynamic conditional lagged correlation approach.

Abstract

Using dynamic conditional correlations (DCCs), we estimate the time-varying relationship between stock market returns and output growth based on monthly data for the US over the 1964:01 to 2012:07 time period. We demonstrate that in general, this relationship is positive and present during the entire study period. Furthermore, our findings suggest that this relationship is strengthened during recessions.

• Item Type: MPRA Paper
• Language: English
• Keywords: stock market returns, real activity, dynamic conditional lagged correlations, recessions
• Subjects: G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy

References

Binswanger, M. (2000) Stock returns and real activity: is there still a connection?, Applied Financial Economics, 10, 379–87.

Binswanger, M. (2004) Stock returns and real activity in G-7 countries: did the relationship change during the 1980s?, The Quarterly Review of Economics and Finance, 44, 237–52.

Canova, F. and De Nicoló, G. (2000) Stock returns, term structure, inflation, and real activity: An international perspective, Macroeconomic Dynamics, 4, 343–72.

Dufour, J. M. and Tessier, D. (2006) Short-Run and Long-Run Causality between Monetary Policy Variables and Stock Prices, Bank of Canada Working Paper 2006-2039.

Engle, R. F. and Ng, V. K. (1993) Measuring and testing the impact of news on volatility, Journal of Finance, 48, 1749–78.

Engle, R. F. and Sheppard, K. (2001) Theoretical and empirical properties of dynamic conditional correlation multivariate GARCH, NBER Working Paper No. 8554, University of California, San Diego.

Fama, E. F. (1990) Stock Returns, Expected Returns, and Real Activity, Journal of Finance, 45, 1089–105.

Mauro, P. (2003) Stock Returns and output growth in emerging and advanced economies, Journal of Development Economics, 71, 129–53.

Panopoulou, E., Pittis, N. and Kalyvitis, S. (2010) Looking far in the past: revisiting the growth-returns nexus with non-parametric tests, Empirical Economics, 38, 743–66.

Schwert, G. W. (1990) Stock Returns and Real Activity: A Century of Evidence, Journal of Finance, 45, 1237–57.