Can Money Supply Predict Stock Prices?
A positive causal relation from money supply to stock prices is frequently hypothesized by some financial media and financial analysts. The basis of this assertion is an assumed negative causal relation from money supply to interest rates, and a negative causal relation from interest rates to stock prices. In this paper, we argue against a stable causal relation from money supply to stock prices. An empirical analysis, based on cointegration and Granger Causality tests, supports our argument.
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- Pesando, James E, 1974. "The Supply of Money and Common Stock Prices: Further Observations on the Econometric Evidence," Journal of Finance, American Finance Association, vol. 29(3), pages 909-21, June.
- Kraft, John & Kraft, Arthur, 1977. "Determinants of Common Stock Prices: A Time Series Analysis," Journal of Finance, American Finance Association, vol. 32(2), pages 417-25, May.
- Gupta, Manak C., 1974. "Money Supply and Stock Prices: A Probabilistic Approach," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 9(01), pages 57-68, January.
- Pearce, Douglas K & Roley, V Vance, 1985.
"Stock Prices and Economic News,"
The Journal of Business,
University of Chicago Press, vol. 58(1), pages 49-67, January.
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