ON STOCKS, BONDS, AND BUSINESS CONDITIONS

This paper examines the relations between Finnish and Swedish asset returns and conditional industrial production growth and risk, respectively, after controlling for the stage-of-the-business-cycle. We find that the analysis of the links between asset markets and the real economy is significantly enriched after controlling for local and global business conditions. We report significant links between asset returns and conditional production growth moments. The relations are also frequently state-dependent. As expected, bonds and stocks seem to react differently to real activity.