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The impact from changes in stock market valuations on investment: new economy versus old economy

  • Hali Edison
  • Torsten Sl�k

This paper investigates whether there is a different impact from changes in 'new' and 'old' economy stock valuations on private investment for seven OECD economies. A vector autoregressive model is estimated for each individual country, using quarterly data over the period 1990-2000. It is found that the impact from changes in valuations of new economy stocks to investment is roughly the same in North America and in the United Kingdom as in continental Europe. By contrast, the impact from changes in old economy stock valuations on investment is, in general, larger in North America and in the United Kingdom than in continental Europe. Finally, the results suggest that in continental Europe the impact on investment from changes in the valuation of new economy stocks is bigger than for old economy stocks, whereas for North America and the United Kingdom, the impact is more similar.

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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 35 (2003)
Issue (Month): 9 ()
Pages: 1015-1023

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Handle: RePEc:taf:applec:v:35:y:2003:i:9:p:1015-1023
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  1. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-24, January.
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  3. Poterba, James M. & Summers, Lawrence H., 1988. "Mean reversion in stock prices : Evidence and Implications," Journal of Financial Economics, Elsevier, vol. 22(1), pages 27-59, October.
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  6. Torsten Sløk & Hali J. Edison, 2001. "Wealth Effects and the New Economy," IMF Working Papers 01/77, International Monetary Fund.
  7. Alexander Ludwig & Torsten Sløk, 2002. "The Impact of Changes in Stock Prices and House Priceson Consumption in OECD Countries," IMF Working Papers 02/1, International Monetary Fund.
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  9. Singh, Ajit & Singh, Alaka & Wiess, Bruce, 2000. "Information Technology, Venture Capital and the Stock Market," Accounting and Finance Discussion Papers 00-af47, Faculty of Economics, University of Cambridge.
  10. Barro, Robert J, 1990. "The Stock Market and Investment," Review of Financial Studies, Society for Financial Studies, vol. 3(1), pages 115-31.
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