Abstract
Besides influences of business cycle on stock market return, transition between adjacent business cycle phases has been considered. The transition can be divided into four types: from depression to revival, revival to prosperity, prosperity to crisis, crisis to depression. It is hypothesized that the first two transition states have positive impacts on expected return, while impacts of the other two are negative. Increasing or decreasing speed of real gross domestic product (RGDP) is used as indicators for business cycle transition, which is reasonable though not perfect. Empirical evidence shows that future information of transition from depression to revival, then to prosperity has positive impacts on current stock market return, and the past information of transition from crisis to depression show negative influences, but there is no evidence about transition from prosperity to crisis.
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