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Stock market consequences of macro economic fundamentals

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Abstract

It is concluded in the study that the Valuation Ratio will be independent from the Equities if equity-elasticity is equal to one. However, Market Capitalization depends on the investment in equities and the market liquidity. The model has been tested in the context of Pakistan and the Monetary and Fiscal policies have been found as the significant determinants of the Market Capitalization.

Suggested Citation

  • Ayub, Mehar, 2000. "Stock market consequences of macro economic fundamentals," MPRA Paper 442, University Library of Munich, Germany, revised 2001.
  • Handle: RePEc:pra:mprapa:442
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    File URL: https://mpra.ub.uni-muenchen.de/442/1/MPRA_paper_442.pdf
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    References listed on IDEAS

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    1. Fair, Ray C, 1979. "An Analysis of a Macro-Econometric Model with Rational Expectations in the Bond and Stock Markets," American Economic Review, American Economic Association, vol. 69(4), pages 539-552, September.
    2. Barry Bosworth, 1975. "The Stock Market and the Economy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(2), pages 257-300.
    3. Blanchard, Olivier J, 1981. "Output, the Stock Market, and Interest Rates," American Economic Review, American Economic Association, vol. 71(1), pages 132-143, March.
    4. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-488, June.
    5. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    6. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
    7. J. Tobin, 1958. "Liquidity Preference as Behavior Towards Risk," Review of Economic Studies, Oxford University Press, vol. 25(2), pages 65-86.
    8. de Bandt, Olivier & Jacquinot, Pascal, 1992. "The financing of corporate firms in France : An econometric model," Economic Modelling, Elsevier, vol. 9(3), pages 253-269, July.
    9. Adler, Michael & Detemple, Jerome B, 1988. " On the Optimal Hedge of a Nontraded Cash Position," Journal of Finance, American Finance Association, vol. 43(1), pages 143-153, March.
    10. Holmstrom, Bengt & Tirole, Jean, 1993. "Market Liquidity and Performance Monitoring," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 678-709, August.
    11. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    12. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-592, July.
    13. Demsetz, Harold, 1983. "The Structure of Ownership and the Theory of the Firm," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 375-390, June.
    14. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Co-integration; Granger’s Causality; Liquidity-Elasticity; Equity-Elasticity; Market Capitalization; Simulation;

    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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