TY - JOUR
T1 - Long-run bulls and bears
AU - Albuquerque, Rui
AU - Eichenbaum, Martin
AU - Papanikolaou, Dimitris
AU - Rebelo, Sergio
N1 - Funding Information:
We thank Gideon Bornstein, Benjamin Johannsen, and Victor Luo for superb research assistance. We benefited from the comments of Bernard Dumas and other participants in the Journal of Monetary Economics-Swiss National Bank-Study Center Gerzensee on Asset Price Fluctuations and Economic Policy. Albuquerque thanks the Portuguese Foundation for Science and Technology-FCT for support under the Grant PTDC/IIM-FIN/2977/2014 .
Publisher Copyright:
© 2015 Elsevier B.V.
Copyright:
Copyright 2016 Elsevier B.V., All rights reserved.
PY - 2015/12/1
Y1 - 2015/12/1
N2 - 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.
AB - 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.
KW - Stock market returns
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U2 - 10.1016/j.jmoneco.2015.09.010
DO - 10.1016/j.jmoneco.2015.09.010
M3 - Article
AN - SCOPUS:84953347703
VL - 76
SP - S21-S36
JO - Carnegie-Rochester Confer. Series on Public Policy
JF - Carnegie-Rochester Confer. Series on Public Policy
SN - 0304-3932
ER -