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Nonlinearity and Endogeneity in Macro-Asset Pricing

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  • Mr. Charles Frederick Kramer
  • Mr. Craig Hiemstra

Abstract

We find nonlinear feedback between the stock market and certain macroeconomic factors. This evidence calls into question the adequacy of these factors as a basis for a linear pricing model. It also means that the interaction between the economy and the stock market is more complicated than given by the simple relationship in Chen, Roll and Ross (1986). It also suggests that the univariate evidence for nonlinear dynamics in the stock market may be due to the complicated relationship between the macroeconomy and the stock market.

Suggested Citation

  • Mr. Charles Frederick Kramer & Mr. Craig Hiemstra, 1995. "Nonlinearity and Endogeneity in Macro-Asset Pricing," IMF Working Papers 1995/032, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1995/032
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    Keywords

    WP; time series;

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