Long-run Bulls and Bears

NBER Working Paper No. 20858

Issued in January 2015, Revised in April 2015

NBER Program(s):Asset Pricing, Economic Fluctuations and Growth



A central challenge in asset pricing is the weak connection between stock returns and observable economic fundamentals. We provide evidence that this connection is stronger than previously thought. We use a modified version of the Bry-Boschan algorithm to identify long-run swings in the stock market. We call these swings long-run bull and bear episodes. We find that there is a high correlation between stock returns and fundamentals across bull and bear episodes. This correlation is much higher than the analogous time-series correlations. We show that several asset pricing models cannot simultaneously account for the low time-series and high episode correlations.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w20858

Published: Albuquerque, Rui & Eichenbaum, Martin & Papanikolaou, Dimitris & Rebelo, Sergio, 2015. "Long-run bulls and bears," Journal of Monetary Economics, Elsevier, vol. 76(S), pages S21-S36. citation courtesy of

Users who downloaded this paper also downloaded* these: