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Time-varying causality between stock prices and macroeconomic fundamentals: Connection or disconnection?

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  • Fromentin, Vincent

Abstract

This study investigates the connection/disconnection between the stock market and macroeconomic fundamentals in the United States from January 1960 to December 2021. Using a recent time-varying Granger causality framework, tests revealed asymmetric bidirectionnal causality. The lead-lag relationships between stock prices and key macroeconomic indicators are more prevalent during recession phases. However, the significance and intensity of the causal relationships during the Covid crisis varied greatly; which could indicate a possible disconnection.

Suggested Citation

  • Fromentin, Vincent, 2022. "Time-varying causality between stock prices and macroeconomic fundamentals: Connection or disconnection?," Finance Research Letters, Elsevier, vol. 49(C).
    • Handle: RePEc:eee:finlet:v:49:y:2022:i:c:s154461232200304x
    DOI: 10.1016/j.frl.2022.103073
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    4. Rajabrata Banerjee & Tony Cavoli & Ron McIver & Shannon Meng & John K. Wilson, 2023. "Predicting long‐run risk factors of stock returns: Evidence from Australia," Australian Economic Papers, Wiley Blackwell, vol. 62(3), pages 377-395, September.

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    More about this item

    Keywords

    Stock market; Macroeconomic variables; Time-varying causality;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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