Macroeconomic shocks and stock market returns

Seungho Baek, Mina Glambosky and Sunil Mohanty

Applied Economics Letters, 2025, vol. 32, issue 11, 1601-1607

Abstract: We examine how structural macroeconomic disturbances impact US stock market returns. Our analysis uncovers a significant negative correlation between stock market returns and both systematic and monetary shocks. Our findings indicate that monetary policy shocks exert a substantial influence on US stock market returns. Forecast error variance decomposition of stock market returns shows systematic and monetary shocks explain 95% of stock return variance. An examination of industry-level stock returns indicates industries engaged in essential goods have greater resilience to shocks, indicating a reduced sensitivity to market fluctuations.

Date: 2025
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DOI: 10.1080/13504851.2024.2308585

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