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The recent ascent of stock prices: can it be explained by earnings growth or other fundamentals?

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Author Info
John B. Carlson
Kevin H. Sargent

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Abstract

An analysis of the current relationship between stock prices, dividends, earnings, and returns, aimed at examining the causes of the recent stock market surge. It reveals that the markets level cannot be explained by any single fundamental element of standard stock valuation models, but rather manifests optimism about future dividend growth (based on the present record growth in earnings) and a lower expected return (reflecting a diminished risk premium for holding equity).

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File URL: http://www.clevelandfed.org/research/review/1997/97-q2-carlson.pdf
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Publisher Info
Article provided by Federal Reserve Bank of Cleveland in its journal Economic Review.

Volume (Year): (1997)
Issue (Month): Q II ()
Pages: 2-12
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Handle: RePEc:fip:fedcer:y:1997:i:qii:p:2-12

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Keywords: Stock - Prices;

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Cochrane, John H, 1994. "Permanent and Transitory Components of GNP and Stock Prices," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 241-65, February. [Downloadable!] (restricted)
  2. Benartzi, Shlomo & Thaler, Richard H, 1995. "Myopic Loss Aversion and the Equity Premium Puzzle," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 73-92, February. [Downloadable!] (restricted)
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  3. John Y. Campbell, Robert J. Shiller, 1988. "The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 1(3), pages 195-228. [Downloadable!] (restricted)
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  4. Timothy Cogley, 1996. "Why do stock prices sometimes fall in response to good economic news?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue Dec 13. [Downloadable!]
  5. Barsky, Robert B & De Long, J Bradford, 1993. "Why Does the Stock Market Fluctuate?," The Quarterly Journal of Economics, MIT Press, vol. 108(2), pages 291-311, May. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alberto Montagnoli & Oreste Napolitano, 2004. "Financial Condition Index and interest rate settings: a comparative analysis," Money Macro and Finance (MMF) Research Group Conference 2004 1, Money Macro and Finance Research Group. [Downloadable!]
    Other versions:
  2. Nathan S. Balke & Mark E. Wohar, 2001. "Explaining stock price movements: is there a case for fundamentals?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q III, pages 22-34. [Downloadable!]
  3. Dean Croushore, 1999. "How useful are forecasts of corporate profits?," Business Review, Federal Reserve Bank of Philadelphia, issue Sep, pages 3-12. [Downloadable!]
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