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Stock Market's Response to Real Output Shocks: Connection Restored but Delayed

Numan Ülkü and Duminda Kuruppuarachchi

International Review of Finance, 2015, vol. 15, issue 4, 613-622

Abstract: We propose a vector autoregression with asymmetric leads model to combine the forward-looking, contemporaneous, and delayed responses of the stock market to output news. Using this approach, we document that the stock market's connection to real output, shown by Binswanger to have been broken since the early 1980s, has been restored after 1998, however, via a delayed response. Subperiods mainly differ in terms of delayed response, portraying an interesting evolution of market participants' response to macroeconomic information based on the realized persistence of output shocks.

Date: 2015
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International Review of Finance is currently edited by Bruce D. Grundy, Naifu Chen, Ming Huang, Takao Kobayashi and Sheridan Titman

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