Ricardo Caballero, Alp Simsek, 05 October 2020

While the Fed’s massive policy response to the Covid-19 shock was successful in reversing the financial meltdown, it did not prevent a dramatic collapse in the real economy. This column argues that the patterns observed are consistent with optimal monetary policy once the subtleties of the relationship between monetary policy, the stock market, and the economy are considered.

Alexandre Garel, Arthur Petit-Romec, 21 July 2020

The COVID-19 pandemic has brought uncertainty over the future of climate actions. This column studies the cross-section of stock returns during the COVID-19 shock to capture investors’ views and expectations about environmental issues. Firms with responsible strategies on environmental and climate issues are found to have had better stock returns between 20 February and 20 March 2020. Hence, the COVID-19 shock did not distract investors’ attention away from environmental issues but rather led investors to reward environmental responsibility to a larger extent.

Chen Chen, Sudipto Dasgupta, Thanh Huynh, Ying Xia, 08 July 2020

Stay-at-home orders, when effective, can save both lives and the economy. Even though the short-term economic impact is very significant, not getting the pandemic under control can impose even higher economic costs in the future. This column studies the market reactions following staggered lockdown events across US states during Covid-19. It finds that returns on firms located in lockdown states are higher following the lockdown. These reactions can be interpreted as reflecting updated beliefs of market participants in the light of events that follow the lockdowns, such as compliance with stay-at-home orders.

Marco Pagano, Christian Wagner, Josef Zechner, 11 June 2020

Whether COVID-19 will trigger a massive reallocation of capital and labour is a key question for policymakers and investors alike. This column shows that asset markets reveal large cross-sectional differences in the repricing of industries before, during, and after the onset of COVID-19. Firms that are more resilient to social distancing significantly outperformed in the six years before and during the COVID-19 outbreak. Looking into the future, stock options imply that investors require significantly lower returns from more pandemic-resilient firms. Governments would be unwise to ignore these signals, directing public financial resources mainly to prop up ailing low-resilience firms.

Gareth Campbell, Richard Grossman, John Turner, 04 September 2019

Although long-run stock market data are an important indicator, obtaining them is challenging. This column constructs new long-run broad-based indices of equities traded on British securities markets for the period 1829-1929 and combines them with a more recent index to examine the timing of British business cycles and compare returns on home and foreign UK investment. One finding is that the capital gains index of blue-chip companies appears to be a good bellwether of macroeconomic behaviour.

Marlene Amstad, Zhiguo He, 16 July 2019

China’s corporate bond ratings are sharply skewed upward, which is partly explained by the large amounts of bonds by issuers who are mostly linked to the government. This column proposes credit spreads as an alternative, market-based measure of credit risk. It also argues that the main reason for the high credit ratings and low dispersion of credit spreads is the very short and limited history of defaults in China. The post-2014 sharp rise in corporate bond defaults is therefore essential for further market development, particularly because Chinese defaults remain low relative to global standards.

Jeffrey Frankel, 08 January 2019

Holger Breinlich, Elsa Leromain, Dennis Novy, Thomas Sampson, Ahmed Usman, 10 October 2018

How did the stock market react to the Brexit referendum of June 2016? This column shows that initial stock price movements on the day after the Leave vote were driven by fears of an economic slowdown in the UK and by a sharp devaluation of the pound. Later movements following two speeches by Theresa May in October 2016 and January 2017 were more closely correlated with potential future changes to tariffs and non-tariff barriers on UK-EU trade. This indicates that these speeches led investors to update their assessment of the likelihood of a hard Brexit.

Pietro Veronesi, 10 September 2018

Why does the stock market tend to do better under Democrat Presidents than Republican ones? In this video, Pietro Veronesi of the University of Chicago's Booth School of Business explains how the evidence seems to show that when risk aversion is very high, during ‘bad times’, voters are more to elect Democrat candidates, thus improvements in stock market performance are more visible under Democratic presidencies.

Christopher Snyder, 12 August 2017

With the press continuing to cast economics in a negative light, it is worth rethinking how our field is described to a lay audience. This column argues that even elementary principles can surprise non-economists with their power to explain a broader set of questions than most would think possible.

Robert Barro, 04 February 2016

China’s diminished growth prospects are in the news and seem to spell bad news for just about everybody. This column assesses the evidence, arguing that China’s economic growth will be much slower from now on, reducing international trade. Perhaps the biggest challenge for China will be future political tensions in reconciling economic dreams with economic realities.

Ross Levine, Chen Lin, Wensi Xie, 29 July 2015

Some have argued that the stock market serves as a ‘spare tire’ during banking crises by providing an alternative corporate financing channel. This column examines the claim using data for 36 countries spanning 20 years. The findings support the three core predictions of the spare tire view, suggesting that countries can insulate parts of their economy from future banking crises by designing appropriate legal frameworks.

Bastian Von Beschwitz, Donald Keim, Massimo Massa, 02 July 2015

High-frequency news analytics can increase market efficiency by allowing traders to react faster to new information. One concern about such services is that they might provide a competitive advantage to their users with potential distortionary price effects. This column looks at how high frequency news analytics affect the stock market, net of the informational content that they provide. News analytics improve price efficiency, but at the cost of reducing liquidity and with potentially distortionary price effects.

Simon Luechinger, Christoph Moser, 27 September 2012

The presidential election campaign is in full swing in the US. Whoever wins the presidential race will face the challenge of filling top positions in the federal administration. Since some political appointees traditionally come from the private sector, allegations of conflicts of interest will emerge. But are connected firms really expected to profit? This column sheds light on this issue.

Gábor Kézdi, Robert Willis, 19 December 2011

How to ordinary people form their beliefs about the economy? These beliefs then shape the decisions they make and can, if widely held, prove to be self-fulfilling. This column looks at surveys of ordinary people in the US and finds that the beliefs people hold and the reasons behind them vary almost as much as the outcomes they try to predict.

Hans Degryse, Frank de Jong, Vincent van Kervel, 24 November 2011

Financial innovation has brought about several new ways to trade equities: electronically, over-the-counter, through broker-dealer networks, and so on. But not all of the transactions are transparent, with many barely visible to outsiders – a practice known as ‘dark’ trades. This column finds that, in general, more ways to trade is a benefit, except when the trades are dark.

Andrew Rose, Christoph Moser, 09 October 2011

Who benefits from regional trade agreements? This column uses stock-market reactions to news about trade deals to argue that "natural" trading partners and poor economies benefit from such agreements.

Luis Viceira, John Campbell, Adi Sunderam, 27 October 2010

The historically low yields on Treasury bonds are the hallmark of a bubble, according to some commentators. This column analyses the relationship between bond yields, the stock market, and inflation over the past 50 years. It finds that the riskiness of nominal bonds changes over time and that investors and policymakers can use the changing stock-bond correlation as a real-time measure of inflation expectations.

Carlo Favero, Arie Gozluklu, Andrea Tamoni, 05 April 2010

Are long-run stock market returns predictable? This column shows that a forecasting model that uses a demographic variable – the ratio of middle-aged to young adults – as well as the dividend price ratio, performs “very well” in forecasting long-horizon stock market returns.



CEPR Policy Research