Recessions and the Stock Market

64 Pages Posted: 30 Apr 2018 Last revised: 3 May 2022

See all articles by Tim Alexander Kroencke

Tim Alexander Kroencke

University of Neuchatel - Institute of Financial Analysis

Date Written: May 2, 2022


An event study approach is adopted to investigate the drivers of the stock market around recessions. First, stock prices and dividends drop contemporaneously when accounting for different timing conventions. Accordingly, stock prices do not anticipate recessions due to an economic mechanism (cash flow news). Second, the variance of price changes increases at least as much as the variance of dividend growth during recessions. This result suggests that changes in the price of risk (discount rate news) play an essential role. Implications and opportunities for standard asset pricing theories and recently proposed alternatives are also discussed.

Keywords: Business cycles and the stock market; predictability of the price-dividend ratio; empirical evaluation of macro-finance models.

JEL Classification: G12

Suggested Citation

Kroencke, Tim Alexander, Recessions and the Stock Market (May 2, 2022). Available at SSRN: or

Tim Alexander Kroencke (Contact Author)

University of Neuchatel - Institute of Financial Analysis ( email )

Neuchatel, CH-2000

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