Liquidity Shocks and Asset Prices
In models of liquidity, stock market booms tend to follow adverse liquidity shocks. This result is clearly at odds with the data. We demonstrate that allowing for endogenous productivity corrects this puzzling price dynamics. Negative growth prospects decrease equity prices because of a long-run predictable component in dividend growth.
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- Ajello, Andrea, 2010.
"Financial intermediation, investment dynamics and business cycle fluctuations,"
32447, University Library of Munich, Germany, revised Mar 2011.
- Andrea Ajello, 2012. "Financial intermediation, investment dynamics and business cycle fluctuations," Finance and Economics Discussion Series 2012-67, Board of Governors of the Federal Reserve System (U.S.).
- Massimiliano Croce, Mariano, 2014. "Long-run productivity risk: A new hope for production-based asset pricing?," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 13-31. Full references (including those not matched with items on IDEAS)