Stock Market Fluctuations and the Business Cycle

31 Pages Posted: 24 Sep 2001

See all articles by Marcelle Chauvet

Marcelle Chauvet

University of California Riverside

Multiple version iconThere are 2 versions of this paper


This paper explores the dynamic relationship between stock market fluctuations and the business cycle. Presumably, stock market movements reflect positions taken by market participants based on their assessment about the current state of the economy. Given the forward-looking behavior of stock market investors, this paper explores the possibility of predicting business cycle turning points using promptly available financial variables. Stock market fluctuations and business cycles are represented by nonlinear dynamic factors at the monthly frequency. The proposed model generates predictions of business cycle turning points using the business cycle factor, and anticipation of these predicted turns using the stock market factor. The findings indicate that the extracted stock market factor is found to be a leading indicator of the state of the business cycle and can be used to anticipate its turning points in real time.

Keywords: Business Cycle, Stock Market, Dynamic Factor, Markov Switching

JEL Classification: C32, E32, E44

Suggested Citation

Chauvet, Marcelle, Stock Market Fluctuations and the Business Cycle. Available at SSRN: or

Marcelle Chauvet (Contact Author)

University of California Riverside ( email )

900 University Avenue
4136 Sproul Hall
Riverside, CA 92521
United States
(951) 827-1587 (Phone)

HOME PAGE: http://

Register to save articles to
your library


Paper statistics

Abstract Views
PlumX Metrics