What happened to the U.S. stock market? accounting for the past 50 years
The extreme volatility of stock market values has been the subject of a large body of literature. Previous research focused on the short run because of a widespread belief that in the long run the market reverts to well-established fundamentals. The authors' research suggests this belief should be questioned. First, they show actual dividends cannot account for the secular trends of stock market values. They then consider a more comprehensive measure of capital income, which displays large secular fluctuations that roughly coincide with changes in stock market trends. Under perfect foresight, however, this measure fails to properly account for stock market movements. The authors thus abandon the perfect foresight assumption and instead assume that forecasts of future capital income are performed using a distributed lag equation and information available up to the forecasting period only. They find that standard asset-pricing theory can be reconciled with the secular trends in the stock market. This study, nevertheless, leaves open an important puzzle for asset-pricing theory: The market value of U.S. corporations was much lower than the replacement cost of corporate tangible assets from the mid-1970s to the mid-1980s.
Volume (Year): (2009)
Issue (Month): Nov ()
|Contact details of provider:|| Postal: |
Web page: http://www.stlouisfed.org/
More information through EDIRC
|Order Information:|| Web: http://www.stls.frb.org/research/order/pubform.html Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lawrence J. Christiano & Michele Boldrin & Jonas D. M. Fisher, 2001.
"Habit Persistence, Asset Returns, and the Business Cycle,"
American Economic Review,
American Economic Association, vol. 91(1), pages 149-166, March.
- Michele Boldrin & Lawrence J. Christiano & Jonas D. M. Fisher, 2000. "Habit persistence, asset returns and the business cycle," Staff Report 280, Federal Reserve Bank of Minneapolis.
- Michele Boldrin & Lawrence J. Christiano & Jonas D.M. Fisher, 1999. "Habit persistence, asset returns and the business cycles," Working Paper Series WP-99-14, Federal Reserve Bank of Chicago.
- Bart Hobijn & Boyan Jovanovic, 2000.
"The Information Technology Revolution and the Stock Market: Evidence,"
NBER Working Papers
7684, National Bureau of Economic Research, Inc.
- Bart Hobijn & Boyan Jovanovic, 2001. "The Information-Technology Revolution and the Stock Market: Evidence," American Economic Review, American Economic Association, vol. 91(5), pages 1203-1220, December.
- Easterbrook, Frank H, 1984. "Two Agency-Cost Explanations of Dividends," American Economic Review, American Economic Association, vol. 74(4), pages 650-59, September.
- Barsky, Robert B & De Long, J Bradford, 1993.
"Why Does the Stock Market Fluctuate?,"
The Quarterly Journal of Economics,
MIT Press, vol. 108(2), pages 291-311, May.
- John Y. Campbell, 2002.
"Consumption-Based Asset Pricing,"
Harvard Institute of Economic Research Working Papers
1974, Harvard - Institute of Economic Research.
When requesting a correction, please mention this item's handle: RePEc:fip:fedlrv:y:2009:i:nov:p:627-646:n:v.91no.6. 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: (Anna Xiao)
If references are entirely missing, you can add them using this form.