Working Paper Series no. 121: Interactions between Business Cycles, stock Market Cycles and Interest Rates: the Stylised Facts

Abstract

In this paper, we study the co-movements between stock market indices and real economic activity over the business cycle in France, Germany, Italy, the United Kingdom and the United States, using two complementary approaches in our analysis. First, we identify the turning points in real economy indicators and stock market indices and determine the extent to which these series co-move. Second, we calculate the correlations between the cyclical components of real economy indicators and excess returns, on the one hand, and the correlations between the structural components and these indicators, on the other. We then analyse the co-movements between three-month interest rates and the cyclical and structural components of the real economy and stock market indices.

Sanvi Avouyi-Dovi and Julien Matheron
January 2005

Classification JEL : E32, E44.

Keywords : stock returns, comovements, turning points, spectral analysis.