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Are Investors More Risk-Averse During Recessions? - Economic Synopses

When stock prices are expected to be more volatile, risk-averse investors will reduce their stock holdings because the chance of having a large capital loss becomes higher.

research.stlouisfed.org/.../2006/10/01/are-investors-more-risk-averse-during-recessions

A Rational Pricing Explanation for the Failure of CAPM - Review

Many authors have found that the capital asset pricing model (CAPM) does not explain stock returns—possibly because it is only a special case of Merton's (1973) intertemporal CAPM under the assumption of constant investment opportunities (e.g., a constant expected equity premium). This article explains the progress that has been made by dropping the assumption that expected returns are constant. 

research.stlouisfed.org/.../2004/05/01/a-rational-pricing-explanation-for-the-failure-of-capm

Oil Price Volatility and U.S. Macroeconomic Activity - Review

Oil shocks exert influence on macroeconomic activity through various channels, many of which imply a symmetric effect. However, the effect can also be asymmetric. In particular, sharp oil price changes—either increases or decreases—may reduce aggregate output temporarily because they delay business investment by raising uncertainty or induce costly sectoral resource reallocation. 

research.stlouisfed.org/.../review/2005/11/01/oil-price-volatility-and-u-s-macroeconomic-activity

Why Are Stock Market Returns Correlated with Future Economic Activities? - Review

Stock price, because it is a forward-looking variable, forecasts economic activities. An unexpected increase in stock price reflects that (i) future dividend growth is higher and/or (ii) future discount rates are lower than previously anticipated; therefore, the increase predicts higher output and investment.

research.stlouisfed.org/.../

Stock Market Returns, Volatility, and Future Output - Review

In this article, Hui Gho shows that, if stock volatility follows an AR(1) process, stock market returns relate positively to past volatility but relate negatively to contemporaneous volatility in Merton’s (1973) Intertemporal Capital Asset Pricing Model. 

research.stlouisfed.org/.../review/2002/09/01/stock-market-returns-volatility-and-future-output