What Drives Stock Prices? Identifying the Determinants of Stock Price Movements
AbstractIn this paper, we show that the data have difficulty distinguishing a stock price decomposition in which expectations of future real dividend growth is a primary determinant of stock price movements from one in which expectations of future excess returns are a primary determinant. The data cannot distinguish between these very different decompositions because movements in the price–dividend ratio are very persistent whereas neither real dividend growth nor excess returns are; most of the information about low-frequency movements in dividend growth and excess returns is contained in stock prices and not the series themselves. We further show that this inability to identify the source of stock price movements is not solely due to poor power and size properties of our statistical procedure, nor does it appear to be due to the presence of a rational bubble.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoArticle provided by Southern Economic Association in its journal Southern Economic Journal.
Volume (Year): 73 (2006)
Issue (Month): 1 (July)
Find related papers by JEL classification:
- G1 - Financial Economics - - General Financial Markets
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Fernando Alexandre, 2003.
"Monetary policy, investment and non-fundamental shocks,"
Computing in Economics and Finance 2003, Society for Computational Economics
296, Society for Computational Economics.
- Fernando Alexandre, 2002. "Monetary Policy, Investment and Non-Fundamental Shocks," NIPE Working Papers, NIPE - Universidade do Minho 6/2002, NIPE - Universidade do Minho.
- Stefan Avdjiev & Nathan Balke, 2010. "Stochastic Volatility, Long Run Risks, and Aggregate Stock Market Fluctuations," BIS Working Papers 323, Bank for International Settlements.
- 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., John Wiley & Sons, Ltd., vol. 24(1), pages 35-75.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Laura Razzolini).
If references are entirely missing, you can add them using this form.