Business Cycle Asymmetry and the Stock Market

Abstract

This paper investigates whether the systematic asymmetric behaviour of the US unemployment rate can be explained by the stock market. We consider threshold models to capture the asymmetric relationship between quarterly US unemployment rate and Dow Jones Industrial Average (DJ) stock returns. We test a range of null hypotheses of equlity restrictions against inequality constraints and the composite null hypothesis involving "steepness" in business cycles.UNEMPLOYMENT ; BUSINESS CYCLES ; MODELS