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Board of Governors of the Federal Reserve System (U.S.)
International Finance Discussion Papers
Stock Market Cross-Sectional Skewness and Business Cycle Fluctuations
Thiago Revil T. Ferreira
Abstract

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.


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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.
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Keywords: Cross-Sectional Skewness ; Business Cycle Fluctuations ; Financial Channel
DOI: 10.17016/IFDP.2018.1223
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