Looking far in the past: revisiting the growth-returns nexus with non-parametric tests
In this paper, we reexamine the linkages between output growth and real stock price changes for the G7 countries using non-parametric procedures to account for the impact of long-lagged observations. We find that correlation between growth and returns is detected at larger horizons than those typically employed in parametric studies. The major feedbacks emerge from stock price changes to growth within the first 6–12 months, but we show that significant feedbacks may last for up to 2 or 3 years. Our evidence also suggests that the correlation patterns differ substantially between the countries at hand when the sectoral share indices are considered.
KeywordsReal stock price changes Output growth Long-run covariance matrix
JEL ClassificationC14 G10 O51
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