Late to Recessions: Stocks and the Business Cycle

Gomez Cram, R (2020) Late to Recessions: Stocks and the Business Cycle. Working Paper. Working Paper.


I find that returns are predictably negative for several months after the onset of recessions, and only become high thereafter. I identify business-cycle turning points by estimating a state-space model using macroeconomic data. Conditioning on the business cycle further reveals that returns exhibit momentum in recessions, whereas in expansions they display the mild reversals expected from discount rate changes. A market timing strategy that optimally exploits this business-cycle pattern produces a 60% increase in the buy-and-hold Sharpe ratio. I find that a subset of hedge funds add value for their clients in part by avoiding stock market crashes during recessions.

More Details

Item Type: Monograph (Working Paper)
Subject Areas: Finance
Date Deposited: 09 Mar 2020 12:06
Date of first compliant deposit: 09 Mar 2020
Last Modified: 26 Mar 2024 01:01

Export and Share


Published Version - Text
  • Restricted to Repository staff only


Downloads from LBS Research Online

View details

Actions (login required)

Edit Item Edit Item