R-Squared and the Economy

52 Pages Posted: 4 May 2013

See all articles by Randall Morck

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governence Institute; Asian Bureau of Finance and Economic Research

Bernard Yin Yeung

National University of Singapore - Business School

Wayne Yu

City University of Hong Kong

Multiple version iconThere are 2 versions of this paper

Date Written: May 2013

Abstract

Many seemingly discordant results are reconciled if firm-specific return volatility is characterized as the intensity with which firm-specific events occur. A functionally efficient stock market allocates capital to its highest value uses, which often amounts to financing Schumpeterian creative destruction, wherein creative winner firms outpace destroyed losers, who can be last year's winners. This elevation in firm-specific fundamentals volatility elevates firm-specific return volatility in a sufficiently informationally efficient stock market. These linkages are interconnected feedback loops, rather than unidirectional chains of causality.

Suggested Citation

Morck, Randall K. and Yeung, Bernard Yin and Yu, Wayne, R-Squared and the Economy (May 2013). NBER Working Paper No. w19017. Available at SSRN: https://ssrn.com/abstract=2260655

Randall K. Morck (Contact Author)

University of Alberta - Department of Finance and Statistical Analysis ( email )

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Bernard Yin Yeung

National University of Singapore - Business School ( email )

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Wayne Yu

City University of Hong Kong ( email )

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Hong Kong

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