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Rationality of Negative Stock-Price Responses to Strong Economic Activity

Rationality of Negative Stock-Price Responses to Strong Economic Activity Monthly, quarterly, and annual data between 1956 and 1995 were used to examine the effects of real economic variables on stock returns, future corporate cash flows, and future inflation. In general, relative effects of various economic variables on stock returns are justified by their effects on future corporate cash flows and on inflation. In particular, employment growth shows the strongest negative effect on stock returns. Compared with other variables, employment growth is related more negatively with future corporate cash flows and more positively with future inflation. These effects are most pronounced in annual data, which reflect long-term relationships. Based on these results, negative stock-price responses to strong economic activity seem to be rational. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Financial Analyst Journal Taylor & Francis

Rationality of Negative Stock-Price Responses to Strong Economic Activity

Financial Analyst Journal , Volume 53 (5): 5 – Sep 1, 1997

Rationality of Negative Stock-Price Responses to Strong Economic Activity

Financial Analyst Journal , Volume 53 (5): 5 – Sep 1, 1997

Abstract

Monthly, quarterly, and annual data between 1956 and 1995 were used to examine the effects of real economic variables on stock returns, future corporate cash flows, and future inflation. In general, relative effects of various economic variables on stock returns are justified by their effects on future corporate cash flows and on inflation. In particular, employment growth shows the strongest negative effect on stock returns. Compared with other variables, employment growth is related more negatively with future corporate cash flows and more positively with future inflation. These effects are most pronounced in annual data, which reflect long-term relationships. Based on these results, negative stock-price responses to strong economic activity seem to be rational.

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References (11)

Publisher
Taylor & Francis
Copyright
Copyright CFA Institute
ISSN
1938-3312
eISSN
0015-198X
DOI
10.2469/faj.v53.n5.2117
Publisher site
See Article on Publisher Site

Abstract

Monthly, quarterly, and annual data between 1956 and 1995 were used to examine the effects of real economic variables on stock returns, future corporate cash flows, and future inflation. In general, relative effects of various economic variables on stock returns are justified by their effects on future corporate cash flows and on inflation. In particular, employment growth shows the strongest negative effect on stock returns. Compared with other variables, employment growth is related more negatively with future corporate cash flows and more positively with future inflation. These effects are most pronounced in annual data, which reflect long-term relationships. Based on these results, negative stock-price responses to strong economic activity seem to be rational.

Journal

Financial Analyst JournalTaylor & Francis

Published: Sep 1, 1997

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