IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

US Stock Prices and Macroeconomic Fundamentals

  • Angela Black
  • Patricia Fraser

    (Aberdeen Asset Management Professor of Finance and Investment Management)

  • Nicolaas Groenewold

    (Department of Economics, The University of Western Australia)

Using 54 yeras of US quarterly data and a VAR model underpinned by a theory of the relationship between stock prices and output, this paper considers the deviations of US stock prices from their fundamental value. To do this we derive the fundamental price-output ratio and the fundamental stock price under different assumptions regarding the time-variability of returns, and proceed to compare these to actual data. Despite differences between model results, all imply cyclical deviations of actual values from values warranted by the expected growth in output - these deviations being relatively large since 1996.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://ecompapers.biz.uwa.edu.au/paper/PDF%20of%20Discussion%20Papers/2001/01-08.pdf
Download Restriction: no

Paper provided by The University of Western Australia, Department of Economics in its series Economics Discussion / Working Papers with number 01-08.

as
in new window

Length: 39 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:uwa:wpaper:01-08
Contact details of provider: Postal: 35 Stirling Highway, Crawley, W.A. 6009
Phone: (08) 9380 2918
Fax: (08) 9380 1016
Web page: http://www.business.uwa.edu.au/school/disciplines/economics

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Campbell, John & Shiller, Robert, 1987. "Cointegration and Tests of Present Value Models," Scholarly Articles 3122490, Harvard University Department of Economics.
  2. S. Grossman & R. Shiller, . "The Determinants of the Variability of Stock Market Price," Rodney L. White Center for Financial Research Working Papers 18-80, Wharton School Rodney L. White Center for Financial Research.
  3. Randall Morck & Andrei Shleifer & Robert W. Vishny, 1990. "The Stock Market and Investment: Is the Market a Sideshow?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(2), pages 157-216.
  4. Campbell, John Y & Ammer, John, 1993. " What Moves the Stock and Bond Markets? A Variance Decomposition for Long-Term Asset Returns," Journal of Finance, American Finance Association, vol. 48(1), pages 3-37, March.
  5. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, March.
  6. Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," The Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July.
  7. Campbell, John Y & Shiller, Robert J, 1988. " Stock Prices, Earnings, and Expected Dividends," Journal of Finance, American Finance Association, vol. 43(3), pages 661-76, July.
  8. Fama, Eugene F, 1990. " Stock Returns, Expected Returns, and Real Activity," Journal of Finance, American Finance Association, vol. 45(4), pages 1089-1108, September.
  9. Nicolaas Groenewold, 1997. "Share Prices and Macroeconomic Factors," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(9&10), pages 1367-1383.
  10. 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.
  11. Harrison Hong & Jeremy C. Stein, 1997. "A Unified Theory of Underreaction, Momentum Trading and Overreaction in Asset Markets," NBER Working Papers 6324, National Bureau of Economic Research, Inc.
  12. Kenneth A. Froot & Maurice Obstfeld, 1989. "Intrinsic Bubbles: The Case of Stock Prices," NBER Working Papers 3091, National Bureau of Economic Research, Inc.
  13. Robert J. Shiller, 1984. "Stock Prices and Social Dynamics," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(2), pages 457-510.
  14. Nicholas Barberis & Andrei Shleifer & Robert W. Vishny, 1997. "A Model of Investor Sentiment," NBER Working Papers 5926, National Bureau of Economic Research, Inc.
  15. Robert J. Shiller, 1980. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," NBER Working Papers 0456, National Bureau of Economic Research, Inc.
  16. Huntley Schaller & Robert Chirinko, 1993. "Bubbles, Fundamentals, and Investment: A Multiple Equation Testing Strategy," Carleton Economic Papers 93-08, Carleton University, Department of Economics, revised Aug 1996.
  17. Lee, Bong-Soo, 1992. " Causal Relations among Stock Returns, Interest Rates, Real Activity, and Inflation," Journal of Finance, American Finance Association, vol. 47(4), pages 1591-603, September.
  18. Cheung, Yin-Wong & Ng, Lilian K., 1998. "International evidence on the stock market and aggregate economic activity," Journal of Empirical Finance, Elsevier, vol. 5(3), pages 281-296, September.
  19. Stanley Fischer & Robert C. Merton, 1985. "Macroeconomics and Finance: The Role of the Stock Market," NBER Working Papers 1291, National Bureau of Economic Research, Inc.
  20. Lee, Bong-Soo, 1998. "Permanent, Temporary, and Non-Fundamental Components of Stock Prices," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(01), pages 1-32, March.
  21. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
  22. Lucy F. Ackert & William C. Hunter, 1999. "Intrinsic bubbles: the case of stock prices: a comment," Working Paper Series WP-99-26, Federal Reserve Bank of Chicago.
  23. Gjerde, Oystein & Saettem, Frode, 1999. "Causal relations among stock returns and macroeconomic variables in a small, open economy," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 9(1), pages 61-74, January.
  24. Chung, Heetaik & Lee, Bong-Soo, 1998. "Fundamental and nonfundamental components in stock prices of Pacific-Rim countries," Pacific-Basin Finance Journal, Elsevier, vol. 6(3-4), pages 321-346, August.
  25. Chen, Nai-Fu, 1991. " Financial Investment Opportunities and the Macroeconomy," Journal of Finance, American Finance Association, vol. 46(2), pages 529-54, June.
  26. Robert J. Shiller, 1984. "Stock Prices and Social Dynamics," Cowles Foundation Discussion Papers 719R, Cowles Foundation for Research in Economics, Yale University.
  27. Hess, Patrick J & Lee, Bong-Soo, 1999. "Stock Returns and Inflation with Supply and Demand Disturbances," Review of Financial Studies, Society for Financial Studies, vol. 12(5), pages 1203-18.
  28. Ackert, Lucy F & Smith, Brian F, 1993. " Stock Price Volatility, Ordinary Dividends, and Other Cash Flows to Shareholders," Journal of Finance, American Finance Association, vol. 48(4), pages 1147-60, September.
  29. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:uwa:wpaper:01-08. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Verity Chia)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.