Co-movement of Fundamentals: Structural Changes in the Business Cycle
AbstractThe co-movement of stocks and of fundamentals changes across the business cycle. Empirical studies have shown that the correlation of stock returns is stronger in crisis. We show that the correlation of fundamentals is the highest during crisis using a large sample of quarterly firm revenues aggregated to industry data from 1969 to 2009. The results of our study indicate that the co-movement of stocks is driven by the co-movement of fundamentals and is not an irrational reaction of markets. Both correlations between industries and the aggregate market and correlations between earnings confirm our findings.
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Bibliographic InfoPaper provided by Cologne Graduate School in Management, Economics and Social Sciences in its series Cologne Graduate School Working Paper Series with number 01-01.
Date of creation: Jul 2010
Date of revision: Dec 2010
correlation; business cycle; fundamentals; revenues; earnings; co-movement of stock returns; crisis; bootstrap; permutation test; industry classification;
Find related papers by JEL classification:
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- M49 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Other
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