4. Conclusions
Research on the relationships between macroeconomic activity and stock prices has been very sparse in European countries. This paper has addressed this subject in relation to France, Germany and the United Kingdom, and the evidence reported above suggests the following main conclusions: i. Movements in production and interest rates clearly determine stock returns in the three countries under consideration. ii. Stock prices anticipate movements in production one year in advance but move simultaneously with interest rates. Future changes in industrial production and current changes in long-term interest rates account for approximately one half of stock returns. iii. When taking the entire 1969–2012 period into account, both variables seem to have the same relative importance in the determination of stock returns. However, over different time periods there are clear differences; in the first years interest rates were the main, if not the only factor, but in recent years this variable is of less importance and future production has become the key factor. iv. All this evidence is surprisingly similar for the three European countries, but differs noticeably from the results obtained for the US, where production seems to be the only factor behind stock returns over the whole period.
