R-squared and the Economy

Randall Morck, Bernard Yeung and Wayne Yu

No 19017, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Many seemingly discordant results are reconciled if firm-specific return volatility is characterized as the intensity with which firm-specific events occur. A functionally efficient stock market allocates capital to its highest value uses, which often amounts to financing Schumpeterian creative destruction, wherein creative winner firms outpace destroyed losers, who can be last year's winners. This elevation in firm-specific fundamentals volatility elevates firm-specific return volatility in a sufficiently informationally efficient stock market. These linkages are interconnected feedback loops, rather than unidirectional chains of causality.

JEL-codes: F3 G14 G3 N2 O16 O3 (search for similar items in EconPapers)
Date: 2013-05
Note: CF
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Citations: View citations in EconPapers (13)

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