Asymmetric adjustment from structural booms and slumps

The connection between booms and slumps in economic activity and stock markets is explored with US and UK data. Based on Phelps [Structural Slumps: The Modern Equilibrium Theory of Unemployment, Interest, and Assets. Harvard University Press, Cambridge, MA, 1994] and Phelps and Zoega [Economic Policy 32 (2001) 85–126], the cointegrating relationship between stock returns and economic activity requires asymmetric adjustment in the short-run.