R 2 and the Economy

Randall Morck, Bernard Yeung () and Wayne Yu ()
Additional contact information
Bernard Yeung: Department of Finance and Strategic Management, Business School, National University of Singapore, Singapore 119245
Wayne Yu: School of Accounting and Finance, Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong

Annual Review of Financial Economics, 2013, vol. 5, issue 1, 143-166

Abstract: The characterization of firm-specific return volatility as the intensity with which firm-specific events occur reconciles many seemingly discordant results. 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 could be the previous year’s winners. This rise 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.

Keywords: stock returns comovement; synchronicity; market efficiency; creative destruction; economic development (search for similar items in EconPapers)
JEL-codes: G14 G15 G38 O1 O3 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (3)

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