Publication: On the economic link between asset prices and real activity
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Identifiers
ISSN: 0306-686X (print)
ISSN: 1468-5957 (online)
Publication date
2007-07
Defense date
Advisors
Tutors
Journal Title
Journal ISSN
Volume Title
Publisher
Wiley-Blackwell
Abstract
This paper presents a model linking two financial markets (stocks and bonds) with
real business cycle, in the framework of the Consumption Capital Asset Pricing Model with
Generalized Isoelastic Preferences. Besides interest rate term spread, the model includes a new
variable to forecast economic activity: stock market term spread. This is the slope of expected
stock market returns. The empirical evidence documented in this paper suggests systematic
relationships between business cycle’s state and the shapes of two yield curves (interest rates and
expected stock returns). Results are robust to changes in measures of economic growth, stock
prices, interest rates and expectations generating mechanisms.
Description
Keywords
Stock market, Interest rates, Economic growth, Term structure
Bibliographic citation
Journal of business finance & accounting, vol. 34, n. 5/6, , jun./jul. 2007, pp. 889-916