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International evidence of temporary and permanent stock-price innovations: a multivariate approach

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  • Philip Shively
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    Abstract

    The existence, size, and dynamic effect of temporary and permanent stock-price innovations has been a prominent issue in financial economics. Previous univariate and multivariate studies find that temporary innovations exist, but they do not yield a consensus regarding the size and dynamic effect of the temporary and permanent stock-price innovations. Real interest rates are intrinsically related to real stock prices through standard present-value models. This note applies Blanchard and Quah's (American Economic Review, 79, 665-673, 1989) bivariate, structural VAR model to monthly real stock returns and real interest rates from six major international financial markets including the US. Using 12 monthly VAR lags in order to capture annual variation in stock prices, this model finds a dramatic range in the size and dynamic effect of temporary and permanent stock-price innovations across the six international financial markets.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

    Volume (Year): 10 (2003)
    Issue (Month): 8 ()
    Pages: 499-503

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    Handle: RePEc:taf:apeclt:v:10:y:2003:i:8:p:499-503

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    Cited by:
    1. Shively, Philip A., 2007. "Asymmetric temporary and permanent stock-price innovations," Journal of Empirical Finance, Elsevier, vol. 14(1), pages 120-130, January.
    2. Massimo Guidolin & Stuart Hyde & David McMillan & Sadayuki Ono, 2010. "Does the macroeconomy predict U.K. asset returns in a nonlinear fashion? comprehensive out-of-sample evidence," Working Papers 2010-039, Federal Reserve Bank of St. Louis.
    3. Massimo Guidolin & Stuart Hyde & David McMillan & Sadayuki Ono, 2009. "Non-linear predictability in stock and bond returns: when and where is it exploitable?," Working Papers 2008-010, Federal Reserve Bank of St. Louis.

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