Recessions and the Stock Market

Why do stock prices fall more sharply than dividends around recessions? One possible explanation is that stock prices fall in anticipation of low future cash flows. I find that prices and cash flows drop contemporaneously, which speaks against such a channel. Alternatively, prices drop because expected returns are rising. I find that price volatility increases substantially more than cash flow volatility during recessions, which suggests that changes in the price of risk play an important role. However, the magnitude necessary is difficult to reconcile by standard models. Studying the stock market around recessions allows for a fresh empirical assessment of competing asset pricing theories.