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U.S. stock prices and macroeconomic fundamentals

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  • Black, Angela
  • Fraser, Patricia
  • Groenewold, Nicolaas

Abstract

Using 54 yeras of US quarterly data and a VAR model underpinned by a theory of the relationship between stock prices and output, this paper considers the deviations of US stock prices from their fundamental value. To do this we derive the fundamental price-output ratio and the fundamental stock price under different assumptions regarding the time-variability of returns, and proceed to compare these to actual data. Despite differences between model results, all imply cyclical deviations of actual values from values warranted by the expected growth in output - these deviations being relatively large since 1996.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 12 (2003)
Issue (Month): 3 ()
Pages: 345-367

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Handle: RePEc:eee:reveco:v:12:y:2003:i:3:p:345-367

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Web page: http://www.elsevier.com/locate/inca/620165

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Citations

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Cited by:
  1. Patricia Fraser & Nicolaas Groenewold, 2004. "US share prices and real demand and supply shocks," Money Macro and Finance (MMF) Research Group Conference 2003 31, Money Macro and Finance Research Group.
  2. Faria, João Ricardo & Mollick, André Varella & Sachsida, Adolfo & Wang, Le, 2012. "Do central banks affect Tobin's q?," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 1-10.
  3. Branston, Christopher B. & Groenewold, Nicolaas, 2004. "Investment and share prices: fundamental versus speculative components," The North American Journal of Economics and Finance, Elsevier, vol. 15(2), pages 199-226, August.
  4. Costello, Greg & Fraser, Patricia & Groenewold, Nicolaas, 2011. "House prices, non-fundamental components and interstate spillovers: The Australian experience," Journal of Banking & Finance, Elsevier, vol. 35(3), pages 653-669, March.
  5. Junttila, Juha & Korhonen, Marko, 2011. "Utilizing financial market information in forecasting real growth, inflation and real exchange rate," International Review of Economics & Finance, Elsevier, vol. 20(2), pages 281-301, April.

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