Productivity and stock prices
This study looks at the degree of correlation between stock prices and productivity at different levels, i.e. analysis of the correlations between certain components of the two variables and how correlations vary according to the different frequencies characterising these variables. It should be acknowledged that the approach used is only designed to isolate the stylised facts related to the cyclical components of the variables under review and not to explain them. In particular, the method chosen cannot be used to make forecasts or to provide a refi ned economic interpretation of these stylised facts. Nonetheless, this analysis, applied to the United States and the euro area over the period 1973(1)-1985(4), highlights the following points: • in the United States, an increase (or reduction) in the cyclical component of the rate of stock returns is positively correlated with current or future increases (or reductions) in that of the productivity growth rate; • in the euro area, this correlation is less strong. It appears, for example, that a sharp fall in stock prices precedes a marked decline in productivity (link between stock prices and future productivity) and, as a result, in profi ts. This fall could then be interpreted as a normal, even desirable, adjustment mechanism for asset prices. Correspondingly, a sharp rise in stock prices should not automatically be interpreted as the emergence of a future bubble given that such rises appear to foreshadow an increase in productivity and therefore in profi ts. Over the most recent period 1986(1)-2002(4), these correlations appear less pronounced, thus indicating a possible break. Our result is robust given that two complementary methods corroborate it and that it is similar to Estrella’s (2003) findings for the United States. This pattern appears to suggest that the cyclical component of stock prices is in phase with that of productivity.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
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.
Volume (Year): (2006)
Issue (Month): 8 (May)
|Contact details of provider:|| Postal: Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS|
Web page: http://www.banque-france.fr/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:bfr:fisrev:2006:8:3. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael brassart)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.