International Effects of Stock Market Dispersion

We study the extent to which stock market dispersion is related to unemployment and output growth for 16 countries over 20 years. Using panel vector-auto-regressions and panel dynamic regressions, we find increases in stock market dispersion across industries to induce future increases in unemployment and future decreases in industrial production (IP) growth. Moreover, the responses of unemployment and IP growth following a positive shock to stock market dispersion are persistent and are robust to various controls, sample periods, and estimation methods. Our article provides cross-country evidence in support of the hypothesis that shifts in demand across industries negatively affect employment.