Stock prices, news, and business conditions
- 1 July 1993
- journal article
- Published by Oxford University Press (OUP) in The Review of Financial Studies
- Vol. 6 (3) , 683-707
- https://doi.org/10.1093/rfs/6.3.683
Abstract
Previous research finds that fundamental macroeconomic news has little effect on stock prices. We show that after allowing for different stages of the business cycle, a stronger relationship between stock prices and news is evident. In addition to stock prices, we examine the effect of real activity news on proxies for expected cashflows and equity discount rates. We find that when the economy is strong the stock market responds negatively to news about bigger real economic activity. This negative relation is caused by the larger increase in discount rates relative to expected cashflows.Keywords
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