News-Driven Business Cycles: Evidence from Expectations of Stock Returns
- Resource Type
- Dissertation/ Thesis
- Authors
- Yujie Zhang
- Source
- Subject
- news-driven business cycles; news shocks; expectations of stock returns; sign restriction method
- Language
- English
This paper proposes an empirical evidence regarding the news-driven business cycles hypothesis by using expectations of stock returns as a new proxy of future fundamentals. A measure of expectations of stock returns which is proposed by Greenwood and Shleifer(2014) is used in sign-restricted structural VAR model. It is highly positively correlated with the level of stock market and can directly describe the investors’ expectations of future economy. The impulse responses show that business cycles can arise on the basis of expectations of future fundamentals without any change in current productivity. Besides, the results suggest that expectations of stock returns is an explicit measure compared with stock prices and consumer confidence.