Board of Governors of the Federal Reserve System (U.S.)
International Finance Discussion Papers
Stock Market Cross-Sectional Skewness and Business Cycle Fluctuations
Using U.S. data from 1926 to 2015, I show that financial skewness—a measure comparing cross-sectional upside and downside risks of the distribution of stock market returns of financial firms—is a powerful predictor of business cycle fluctuations. I then show that shocks to financial skewness are important drivers of business cycles, identifying these shocks using both vector autoregressions and a dynamic stochastic general equilibrium model. Financial skewness appears to reflect the exposure of financial firms to the economic performance of their borrowers.
Cite this item
Thiago Revil T. Ferreira, Stock Market Cross-Sectional Skewness and Business Cycle Fluctuations, Board of Governors of the Federal Reserve System (U.S.), International Finance Discussion Papers 1223, 06 Mar 2018.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
Keywords: Cross-Sectional Skewness ; Business Cycle Fluctuations ; Financial Channel
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