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Why Does the Stock Market Fluctuate?

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  • Barsky, Robert B
  • De Long, J Bradford

Abstract

Major long-run swings in the U.S. stock market over the past century are broadly consistent with a model driven by changes in current and expected future dividends in which investors must estimate the time-varying long-run dividend growth rate. Such an estimated long-run growth rate resembles a long distributed lag on past dividend growth and is highly correlated with the level of dividends. Prices, therefore, respond more than proportionately to long-run movements in dividends. The time-varying component of dividend growth need not be detectable in the dividend data for it to have large effects on stock prices. Copyright 1993, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 108 (1993)
Issue (Month): 2 (May)
Pages: 291-311

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Handle: RePEc:tpr:qjecon:v:108:y:1993:i:2:p:291-311

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Web page: http://mitpress.mit.edu/journals/

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  1. Kleidon, Allan W, 1988. "The Probability of Gross Violations of a Present Value Variance Inequality: Reply," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 1093-96, October.
  2. Campbell, J.Y. & Shiller, R.J., 1988. "Stock Prices, Earnings And Expected Dividends," Papers 334, Princeton, Department of Economics - Econometric Research Program.
  3. LeRoy, Stephen F, 1989. "Efficient Capital Markets and Martingales," Journal of Economic Literature, American Economic Association, vol. 27(4), pages 1583-1621, December.
  4. N. Gregory Mankiw & David H. Romer & Matthew D. Shapiro, 1989. "Stock Market Forecastability and Volatility: A Statistical Appraisal," NBER Working Papers 3154, National Bureau of Economic Research, Inc.
  5. Barsky, Robert B. & Long, J. Bradford De, 1990. "Bull and Bear Markets in the Twentieth Century," The Journal of Economic History, Cambridge University Press, vol. 50(02), pages 265-281, June.
  6. Shiller, Robert J & Siegel, Jeremy J, 1977. "The Gibson Paradox and Historical Movements in Real Interest Rates," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 891-907, October.
  7. J. Bradford De Long & Marco Becht, 1992. ""Excess Volatility" and the German Stock Market, 1876-1990," NBER Working Papers 4054, National Bureau of Economic Research, Inc.
  8. Kenneth D. West, 1989. "Bubbles, Fads, and Stock Price Volatility Tests: A Partial Evaluation," NBER Working Papers 2574, National Bureau of Economic Research, Inc.
  9. Grossman, Sanford J & Shiller, Robert J, 1981. "The Determinants of the Variability of Stock Market Prices," American Economic Review, American Economic Association, vol. 71(2), pages 222-27, May.
  10. Barsky, Robert B & De Long, J Bradford, 1991. "Forecasting Pre-World War I Inflation: The Fisher Effect and the Gold Standard," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 815-36, August.
  11. Poterba, James M. & Summers, Lawrence H., 1988. "Mean reversion in stock prices : Evidence and Implications," Journal of Financial Economics, Elsevier, vol. 22(1), pages 27-59, October.
  12. DeLong, J. Bradford & Eichengreen, Barry, 1991. "The Marshall Plan: History's Most Successful Structural Adjustment Program," Department of Economics, Working Paper Series qt3b1108bj, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  13. Mankiw, N Gregory & Romer, David & Shapiro, Matthew D, 1985. " An Unbiased Reexamination of Stock Market Volatility," Journal of Finance, American Finance Association, vol. 40(3), pages 677-87, July.
  14. Terry A. Marsh and Robert C. Merton., 1986. "Dividend Behavior for the Aggregate Stock Market," Research Program in Finance Working Papers 163, University of California at Berkeley.
  15. Barsky, Robert B & Summers, Lawrence H, 1988. "Gibson's Paradox and the Gold Standard," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 528-50, June.
  16. Robert J. Shiller, 1980. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," NBER Working Papers 0456, National Bureau of Economic Research, Inc.
  17. repec:fth:calaec:13-89 is not listed on IDEAS
  18. Fama, Eugene F & French, Kenneth R, 1988. "Permanent and Temporary Components of Stock Prices," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 246-73, April.
  19. Summers, Lawrence H, 1986. " Does the Stock Market Rationally Reflect Fundamental Values?," Journal of Finance, American Finance Association, vol. 41(3), pages 591-601, July.
  20. Shiller, Robert J, 1988. "The Probability of Gross Violations of a Present Value Variance Inequality," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 1089-92, October.
  21. Kleidon, Allan W, 1986. "Variance Bounds Tests and Stock Price Valuation Models," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 953-1001, October.
  22. Shiller, Robert J, 1990. "Speculative Prices and Popular Models," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 55-65, Spring.
  23. Kleidon, Allan W, 1986. "Anomalies in Financial Economics: Blueprint for Change?," The Journal of Business, University of Chicago Press, vol. 59(4), pages S469-99, October.
  24. Cecchetti, Stephen G & Lam, Pok-sang & Mark, Nelson C, 1990. "Mean Reversion in Equilibrium Asset Prices," American Economic Review, American Economic Association, vol. 80(3), pages 398-418, June.
  25. Robert J. Shiller, 1984. "Stock Prices and Social Dynamics," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(2), pages 457-510.
  26. LeRoy, Stephen F & Porter, Richard D, 1981. "The Present-Value Relation: Tests Based on Implied Variance Bounds," Econometrica, Econometric Society, vol. 49(3), pages 555-74, May.
  27. Robert J. Shiller, 1984. "Stock Prices and Social Dynamics," Cowles Foundation Discussion Papers 719R, Cowles Foundation for Research in Economics, Yale University.
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