Stock Prices, News, and Business Conditions

Grant McQueen · V. Vance Roley

675 citations0/0 files storedReview of Financial Studies

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Financial Markets and Investment Strategies Financial Analysis and Corporate Governance Market Dynamics and Volatility

Abstract

Previous research finds that fundamental macroeconomic news has little effect on stock prices. We show that after allowing for different stages of the business cycle, a stronger relationship between stock prices and news is evident. In addition to stock prices, we examine the effect of real activity news on proxies for expected cash flows and equity discount rates. We find that when the economy is strong the stock market responds negatively to news about higher real economic activity. This negative relation is caused by the larger increase in discount rates relative to expected cash flows.

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References

1989A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle 1986Economic Forces and the Stock Market 1987Expected stock returns and volatility 1988The Dynamic Effects of Aggregate Demand and Supply Disturbances 1989Business conditions and expected returns on stocks and bonds 1989Why Does Stock Market Volatility Change Over Time?1977Asset returns and inflation 1981Stock Returns, Real Activity, Inflation, and Money

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