Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/269866 
Year of Publication: 
2023
Series/Report no.: 
Deutsche Bundesbank Discussion Paper No. 05/2023
Publisher: 
Deutsche Bundesbank, Frankfurt a. M.
Abstract: 
The cross-sectional average of pairwise correlations across stocks traded on the NYSE, AMEX, and Nasdaq is a powerful predictor of U.S. economic activity at a horizon of one to four years. Its predictive ability is on a par with the slope of the yield curve and significantly exceeds that of some other widely used financial indicators. The macroeconomic effects of an innovation to stock return correlation in a vector autoregression are nearly identical to those of a news shock about future productivity. Thus, market-wide changes in return correlation contain information about changes in future technological developments.
Subjects: 
Business Cycles
News Shock
Stock Market
Uncertainty
JEL: 
E32
E44
ISBN: 
978-3-95729-936-9
Document Type: 
Working Paper

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