Stock Market's Response to Real Output Shocks: Connection Restored But Delayed

10 Pages Posted: 19 Jan 2016

See all articles by Numan Ülkü

Numan Ülkü

University of Otago

Duminda Kuruppuarachchi

University of Otago - Department of Accountancy and Finance

Date Written: December 2015

Abstract

We propose a vector autoregression with asymmetric leads model to combine the forward‐looking, contemporaneous, and delayed responses of the stock market to output news. Using this approach, we document that the stock market's connection to real output, shown by Binswanger to have been broken since the early 1980s, has been restored after 1998, however, via a delayed response. Subperiods mainly differ in terms of delayed response, portraying an interesting evolution of market participants' response to macroeconomic information based on the realized persistence of output shocks.

JEL Classification: G14, E32

Suggested Citation

Ülkü, Numan and Kuruppuarachchi, Duminda, Stock Market's Response to Real Output Shocks: Connection Restored But Delayed (December 2015). International Review of Finance, Vol. 15, Issue 4, pp. 613-622, 2015, Available at SSRN: https://ssrn.com/abstract=2716877 or http://dx.doi.org/10.1111/irfi.12056

Numan Ülkü (Contact Author)

University of Otago ( email )

P.O. Box 56
Dunedin, 9010
New Zealand

Duminda Kuruppuarachchi

University of Otago - Department of Accountancy and Finance ( email )

PO Box 56
Dunedin, 9054
New Zealand

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