Stock Returns and Real Activity
A Century of Evidence
G. William Schwert
University of Rochester, Rochester, NY 14627
and National Bureau of Economic Research
Journal of Finance, 45 (September 1990) 1237-1257
This paper analyzes the relation between real stock returns and real activity
from 1889-1988. It replicates Fama's  results for the 1953-87 period
using an additional 65 years of data. It also compares two measures of industrial
production in the tests: (1) the series produced by Babson for 1889-1918,
spliced with the Federal Reserve Board index of industrial production for
1919-1988, and (2) the new Miron and Romer  index spliced with the Fed
index in 1941. Fama's findings are robust for a much longer period -- future
production growth rates explain a large fraction of the variation in stock
returns. The new Miron-Romer measure of industrial production is less closely
related to stock price movements than the older Babson and Federal Reserve
Key words: Stock Market, Industrial Production, Real Activity
JEL Classifications: G12, G14, E32
Cited 149 times in the SSCI and SCOPUS through 2017
© Copyright 1990, American Finance Association
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