Thanks to Vince, here's a study I did comparing business bankruptcies in 1 year vs.
Market returns the next year. Hypothesis is that more bankruptcies denote a healthy economy
and should mean higher market returns. Make your own conclusions and feel free to comment.
In a rush to fly to midwest, otherwise I'd make it prettier…
-- Ari Siegel, 6/30/2004
Regressed year t total biz bankruptcies vs. year t+1 major us equity markets return from 1981-2003
Results:
+1000 bankruptcies above Mu in year t = +0.22% return in year t+1
N=23
R^2=0.031
Intercept= -0.127 (should be more like markets' avg annual return of 0.13) Std error=0.27%
T-stat=0.82
Interpretation: More bankruptcies does = higher return next year, but data issues
Problems:
Few observations, Low t-stat (z-score), non-significant f-score, upper/lower 95% confidence intervals
overlap, if look at raw data set just doesn't seem statistically significant
Note: got similar results regressing year t bankruptcies vs. same year market return.
Data Set (year t bankruptcies vs. year t+1 mkt return):
    Next Year's
    Return
  All NYSE
  Business AMEX
Year Filings(000s) NASDAQ
1980 44 -17.40%
1981 48 7.00%
1982 69 9.20%
1983 62 -10.30%
1984 64 18.00%
1985 71 2.10%
1986 81 -11.60%
1987 82 4.10%
1988 64 15.00%
1989 63 -19.50%
1990 65 20.20%
1991 72 -4.40%
1992 71 -1.90%
1993 62 -14.20%
1994 52 22.20%
1995 52 7.70%
1996 54 16.90%
1997 54 8.90%
1998 44 12.00%
1999 44 -24.60%
2000 35 -24.70%
2001 40 -34.40%
2002 39 19.70%