Long-run bulls and bears

Rui Albuquerque, Martin Eichenbaum, Dimitris Papanikolaou and Sergio Rebelo ()

Journal of Monetary Economics, 2015, vol. 76, issue S, S21-S36

Abstract: 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.

Keywords: Stock market returns (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (26)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:76:y:2015:i:s:p:s21-s36

DOI: 10.1016/j.jmoneco.2015.09.010

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