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Rational Expectations and the Impact of Money upon Stock Prices

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  • Sorensen, Eric H.

Abstract

Received monetary theory supports the existence of a strong relationship between monetary activity and stock prices. Following the work of Friedman and Schwartz [8], relating money supply to aggregate economic activity, some researchers have examined the more specific connection between changes in the rate of growth of money supply and associated movements in stock prices (see [6], [10], [11], [14], [17], [18], [19], [20], [22], and [28]). These studies use a variety of monetary aggregate measures to functionally relate the level of stock market indices to contemporaneous and lagged monetary growth rates. In general, the findings indicate a direct relationship between money supply and stock returns.

Suggested Citation

  • Sorensen, Eric H., 1982. "Rational Expectations and the Impact of Money upon Stock Prices," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 17(5), pages 649-662, December.
    • Handle: RePEc:cup:jfinqa:v:17:y:1982:i:05:p:649-662_01
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    Cited by:

    1. Rapach, David E., 2001. "Macro shocks and real stock prices," Journal of Economics and Business, Elsevier, vol. 53(1), pages 5-26.
    2. Darrat, Ali F & Glascock, John L, 1993. "On the Real Estate Market Efficiency," The Journal of Real Estate Finance and Economics, Springer, vol. 7(1), pages 55-72, July.
    3. Tarak Nath Sahu & Krishna Dayal Pandey, 2020. "Money Supply and Equity Price Movements During the Liberalized Period in India," Global Business Review, International Management Institute, vol. 21(1), pages 108-123, February.
    4. Bhuiyan, Erfan M. & Chowdhury, Murshed, 2020. "Macroeconomic variables and stock market indices: Asymmetric dynamics in the US and Canada," The Quarterly Review of Economics and Finance, Elsevier, vol. 77(C), pages 62-74.
    5. Chin-Hong Puah, & Muzafar Shah Habibullah & Kian-Ping Lim, 2006. "Testing Long-Run Neutrality Of Money: Evidence From Malaysian Stock Market," The IUP Journal of Applied Economics, IUP Publications, vol. 0(4), pages 15-37, July.
    6. Sellin, Peter, 1998. "Monetary Policy and the Stock Market: Theory and Empirical Evidence," Working Paper Series 72, Sveriges Riksbank (Central Bank of Sweden).
    7. Wang, Ling, 2022. "The dynamics of money supply determination under asset purchase programs: A market-based versus a bank-based financial system," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 79(C).
    8. Širůček, Martin, 2015. "Kauzalní vztah peněžní nabídky a amerického akciového trhu [Money supply and US stock market causality]," MPRA Paper 66357, University Library of Munich, Germany, revised 30 Aug 2015.
    9. Mookerjee, Rajen & Yu, Qiao, 1997. "Macroeconomic variables and stock prices in a small open economy: The case of Singapore," Pacific-Basin Finance Journal, Elsevier, vol. 5(3), pages 377-388, July.
    10. Ditimi Amassoma & Sunday Keji & Emma-Ebere Onyedikachi O., 2017. "The Upshot of Money Supply and Inflation in Nigeria," Valahian Journal of Economic Studies, Sciendo, vol. 8(2), pages 75-90, October.
    11. Shee Q. Wong, 1986. "The Contribution Of Inflation Uncertainty To The Variable Impacts Of Money On Stock Prices," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 9(1), pages 97-101, March.
    12. Cedric L. Mbanga & Ali F. Darrat, 2016. "Fiscal policy and the US stock market," Review of Quantitative Finance and Accounting, Springer, vol. 47(4), pages 987-1002, November.

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