Interpretable asset markets?
Abstract
In this paper we show that measures of economic uncertainty (conditional volatility of consumption) predict and are predicted by valuation ratios at long horizons. Further we document that asset valuations drop as economic uncertainty rises that is, financial markets dislike economic uncertainty. Moreover, future earnings growth rates are sharply predicted by current price-earnings ratios. It seems that much of the variation in asset prices can be attributed to fluctuations in economic uncertainty and expected cash-flow growth. This empirical evidence is consistent with the implications of existing parametric general equilibrium models. Hence, the channels of fluctuating economic uncertainty and expected growth seem important for interpreting asset markets.(This abstract was borrowed from another version of this item.)
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Bibliographic Info
Article provided by Elsevier in its journal European Economic Review.
Volume (Year): 49 (2005)
Issue (Month): 3 (April)
Pages: 531-560
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Web page: http://www.elsevier.com/locate/eer
Related research
Keywords:Other versions of this item:
- Ravi Bansal & Varoujan Khatachtrian & Amir Yaron, 2002. "Interpretable Asset Markets?," NBER Working Papers 9383, National Bureau of Economic Research, Inc.
- Ravi Bansal & Varoujan Khatchatrian & Amir Yaron, 2004. "Interpretable Asset Markets?," 2004 Meeting Papers 136b, Society for Economic Dynamics.
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