Stock Price Effects of Permanent and Transitory Shocks
AbstractThis paper exploits the long-run equilibrium relationship between stock prices and dividends, implied by the present value model, to structurally identify a dynamic model that governs the behavior of stock prices. The innovations to the data are dichotomized into those that leave a permanent imprint on both series and those that have only transitory effects. Unlike previous studies, however, the authors do not impose arbitrary identifying restrictions to decompose the joint process, restrictions that may not be consistent with the data. Copyright 1998 by Oxford University Press.
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Bibliographic InfoArticle provided by Western Economic Association International in its journal Economic Inquiry.
Volume (Year): 36 (1998)
Issue (Month): 4 (October)
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- Cunado, J. & Gil-Alana, L.A. & de Gracia, F. Perez, 2005. "A test for rational bubbles in the NASDAQ stock index: A fractionally integrated approach," Journal of Banking & Finance, Elsevier, vol. 29(10), pages 2633-2654, October.
- Nasseh, Alireza & Strauss, Jack, 2004. "Stock prices and the dividend discount model: did their relation break down in the 1990s?," The Quarterly Review of Economics and Finance, Elsevier, vol. 44(2), pages 191-207, May.
- Nathan S. Balke & Mark E. Wohar, 2009. "Market fundamentals versus rational bubbles in stock prices: a Bayesian perspective," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(1), pages 35-75.
- Edward Bernard Bastiaan de Rivera y Rivera & Diógenes Manoel Leiva Martin & Emerson Fernandes Marçal & Leonardo Fernando Cruz Basso, 2012. "Present value model between prices and dividends with constant and time-varying expected returns: enterprise-level Brazilian stock market evidence from non-stationary panels," Brazilian Business Review, Fucape Business School, vol. 9(4), pages 51-86, October.
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