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US Share Prices and Real Supply and Demand Shocks

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Author Info
Patricia Fraser () (Department of Accountancy and Finance, Business School, University of Aberdeen)
Nicolaas Groenewold () (UWA Business School, The University of Western Australia)
Abstract

Using theoretical foundations, VAR restrictions are imposed allowing demand and supply sources of output movement to be distinguished and the effects of their shocks on stock prices to be analysed. Stock prices are sensitive to all shocks although the influence from the real economy to the stock market is less important than shocks that are peculiar to the market itself. Decompositions using temporary/permanent and real economy/stock market distinctions suggest that the historical contribution of demand, supply and portfolio shocks to real stock price fluctuations changes over time – a feature that is particularly evident post mid-1990s.

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Paper provided by The University of Western Australia, Department of Economics in its series Economics Discussion / Working Papers with number 03-19.

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Length: 36 pages
Date of creation: 2003
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Handle: RePEc:uwa:wpaper:03-19

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