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Stock Prices and Fundamentals: A Macroeconomic Perspective

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  • Michael T. Kiley

    (Federal Reserve Board)

Abstract

This paper compares the predictions for the market value of firms from the Gordon growth model with those from a dynamic general-equilibrium model. The predictions for movements in the market value of firms following shifts in preferences, growth prospects, and risk are quantitatively and qualitatively different across the models. While previous research illustrated how a drop in the required return or an increase in the growth rate of the economy can explain the run-up in equity values in the 1990s in the Gordon growth model, the general-equilibrium model suggests that such results are misleading.

Suggested Citation

  • Michael T. Kiley, 2004. "Stock Prices and Fundamentals: A Macroeconomic Perspective," The Journal of Business, University of Chicago Press, vol. 77(4), pages 909-936, October.
    • Handle: RePEc:ucp:jnlbus:v:77:y:2004:i:4:p:909-936
    DOI: 10.1086/422629
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    Cited by:

    1. Madsen, Jakob B., 2010. "Growth and capital deepening since 1870: Is it all technological progress?," Journal of Macroeconomics, Elsevier, vol. 32(2), pages 641-656, June.
    2. Mehra, Rajnish, 2010. "Indian Equity Markets: Measures of Fundamental Value," India Policy Forum, National Council of Applied Economic Research, vol. 6(1), pages 1-38.
    3. Aikman, David & Bridges, Jonathan & Burgess, Stephen & Galletly, Richard & Levina, Iren & O'Neill, Cian & Varadi, Alexandra, 2018. "Measuring risks to UK financial stability," Bank of England working papers 738, Bank of England.
    4. Bahaa Sobhi AbdeLatif Awwad & Ammar Zakaria Abdallh Salem, 2019. "The Role of Financial Analysis in Assessing the Prices of Shares of Jordanian Industrial Joint Stock Companies Listed on the Amman Stock Exchange," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 11(6), pages 120-120, June.

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