Late to Recessions: Stocks and the Business Cycle

98 Pages Posted: 28 Sep 2020 Last revised: 25 Jun 2021

Date Written: June 25, 2021


I find that returns are predictably negative for several months after the onset of recessions, becoming high only thereafter. I identify business cycle turning points by estimating a state-space model using macroeconomic data. Conditioning on the business cycle further reveals that returns exhibit momentum in recessions, whereas in expansions, they display the mild reversals expected from discount rate changes. A strategy exploiting this pattern produces positive alphas. Using analyst forecast data, I show my findings are consistent with investors’ slow reaction to recessions. When expected returns are negative, analysts are too optimistic and their downward expectations revisions are exceptionally high.

Keywords: equity risk premia, business cycles

JEL Classification: G11, G12, G41

Suggested Citation

Gomez Cram, Roberto, Late to Recessions: Stocks and the Business Cycle (June 25, 2021). Journal of Finance, Forthcoming, Available at SSRN: or

Roberto Gomez Cram (Contact Author)

London Business School ( email )

Regent's Park, London NW1 4SA
Regent's Park
London, London NW1 4SA
United Kingdom

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