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Stock Price Effects of Permanent and Transitory Shocks


  • Crowder, William J
  • Wohar, Mark E


This paper exploits the long-run equilibrium relationship between stock prices and dividends, implied by the present value model, to structurally identify a dynamic model that governs the behavior of stock prices. The innovations to the data are dichotomized into those that leave a permanent imprint on both series and those that have only transitory effects. Unlike previous studies, however, the authors do not impose arbitrary identifying restrictions to decompose the joint process, restrictions that may not be consistent with the data. Copyright 1998 by Oxford University Press.

Suggested Citation

  • Crowder, William J & Wohar, Mark E, 1998. "Stock Price Effects of Permanent and Transitory Shocks," Economic Inquiry, Western Economic Association International, vol. 36(4), pages 540-552, October.
  • Handle: RePEc:oup:ecinqu:v:36:y:1998:i:4:p:540-52

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    References listed on IDEAS

    1. Abbott, Philip C. & McCarthy, F. Desmond, 1982. "Welfare effects of tied food aid," Journal of Development Economics, Elsevier, vol. 11(1), pages 63-79, August.
    2. Christopher B. Barrett, 1998. "Food Aid: Is It Development Assistance, Trade Promotion, Both, or Neither?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(3), pages 566-571.
    3. Blanchard, Olivier Jean, 1989. "A Traditional Interpretation of Macroeconomic Fluctuations," American Economic Review, American Economic Association, vol. 79(5), pages 1146-1164, December.
    4. Mohapatra, Sandeep & Barrett, Christopher B. & Snyder, Donald L. & Biswas, Basudeb, 1998. "Does Food Aid Really Discourage Food Production?," Economics Research Institute, ERI Study Papers 28369, Utah State University, Economics Department.
    5. Theodore W. Schultz, 1960. "Value of U.S. Farm Surpluses to Underdeveloped Countries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 42(5), pages 1019-1030.
    6. Barrett, Christopher B & Mohapatra, Sandeep & Snyder, Donald L, 1999. "The Dynamic Effects of U.S. Food Aid," Economic Inquiry, Western Economic Association International, vol. 37(4), pages 647-656, October.
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    Cited by:

    1. Ye, Yonggang & Chang, Tsangyao & Hung, Ken & Lu, Yang-Cheng, 2011. "Revisiting rational bubbles in the G-7 stock markets using the Fourier unit root test and the nonparametric rank test for cointegration," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 82(2), pages 346-357.
    2. repec:bbz:fcpbbr:v:9:y:2012:i:4:p:51-86 is not listed on IDEAS
    3. Tsangyao Chang & Wen-Chi Liu, 2008. "Rational Bubbles in the Korea Stock Market? Further Evidence based on Nonlinear and Nonparametric Cointegration Tests," Economics Bulletin, AccessEcon, vol. 3(34), pages 1-12.
    4. repec:eme:jespps:v:43:y:2016:i:4:p:646-660 is not listed on IDEAS
    5. repec:ipg:wpaper:2014-462 is not listed on IDEAS
    6. Nathan S. Balke & Mark E. Wohar, 2009. "Market fundamentals versus rational bubbles in stock prices: a Bayesian perspective," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(1), pages 35-75.
    7. Leone, Vitor & de Medeiros, Otavio Ribeiro, 2015. "Signalling the Dotcom bubble: A multiple changes in persistence approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 55(C), pages 77-86.
    8. Cunado, J. & Gil-Alana, L.A. & de Gracia, F. Perez, 2005. "A test for rational bubbles in the NASDAQ stock index: A fractionally integrated approach," Journal of Banking & Finance, Elsevier, vol. 29(10), pages 2633-2654, October.
    9. repec:spr:jecfin:v:42:y:2018:i:1:d:10.1007_s12197-017-9387-9 is not listed on IDEAS
    10. Nasseh, Alireza & Strauss, Jack, 2004. "Stock prices and the dividend discount model: did their relation break down in the 1990s?," The Quarterly Review of Economics and Finance, Elsevier, vol. 44(2), pages 191-207, May.

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