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Stock Returns and Real Activity: A Century of Evidence

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G. William Schwert

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Abstract

This paper analyzes the relation between real stock returns and real activity from 1889-1988. It replicates Fama's (1990) results for the 1953-87 period using an additional 65 years of data. It also compares two measures of industrial production in the tests: (1) the series produced by Babson for 18891918, spliced with the Federal Reserve Board index of industrial production for 1919-1988, and (2) the new Miron and Romer (1989) index spliced with the Fed index in 1941. Fama's findings are robust for a much longer period -- future production growth rates explain a large fraction of the variation in stock returns. The new Miron-Romer measure of industrial production is less closely related to stock price movements than the older Babson and Federal Reserve Board measures.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3296.

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Date of creation: Dec 1990
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Handle: RePEc:nbr:nberwo:3296

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  1. French, Kenneth R. & Schwert, G. William & Stambaugh, Robert F., 1987. "Expected stock returns and volatility," Journal of Financial Economics, Elsevier, vol. 19(1), pages 3-29, September. [Downloadable!] (restricted)
  2. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July. [Downloadable!] (restricted)
  3. John Y. Campbell & Robert J. Shiller, 1989. "The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors," NBER Working Papers 2100, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Kaul, Gautam, 1987. "Stock returns and inflation : The role of the monetary sector," Journal of Financial Economics, Elsevier, vol. 18(2), pages 253-276, June. [Downloadable!] (restricted)
  5. Barro, Robert J, 1990. "The Stock Market and Investment," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 3(1), pages 115-31. [Downloadable!] (restricted)
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  6. Christina Romer & Jeffrey A. Miron, 1989. "A New Monthly Index of Industrial Production, 1884-1940," NBER Working Papers 3172, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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