Using monthly stock-market data covering 150 years from 1871 to 2021, this paper estimates stock market reaction to recession and analyzes whether recession creates buying opportunities. The stock price overreacts to recession. The overreaction is of large magnitude and fairly consistent. Buying...

Expected idiosyncratic volatility and its positive relation to expected returns of Fu (2009) can be closely replicated, but only when we include information up to time t to estimate the idiosyncratic volatility at time t. Since this involves look-ahead bias, we re-estimate expected idiosyncratic...