Permanent and temporary components of stock prices : evidence from assessing macroeconomic shocks
Gallagher, Liam A. and Taylor, Mark P.. (2002) Permanent and temporary components of stock prices : evidence from assessing macroeconomic shocks. SOUTHERN ECONOMIC JOURNAL, 69 (2). pp. 345-362. ISSN 0038-4038Full text not available from this repository.
Official URL: http://www.jstor.org/stable/1061676
This paper outlines a simple macro model with overlapping wage contracts to investigate how the temporary and permanent components of stock price movements may be related to aggregate macroeconomic supply and demand disturbances. In the content of the model, we show that aggregate demand shocks have only temporary effects on real stock prices, while supply shocks may affect the level of real stock prices permanently. Moreover, the temporary component in U.S. stock prices, identified by placing appropriate structural restrictions on a vector autoregressive system estimated for the postwar period, is statistically significant. This evidence supports the mean-reversion hypothesis that stock prices are not pure random walks. The finding is robust to the choice of variables used in the vector autoregressive system and periodicity.
|Item Type:||Journal Article|
|Subjects:||H Social Sciences > HC Economic History and Conditions|
|Divisions:||Faculty of Social Sciences > Warwick Business School|
|Journal or Publication Title:||SOUTHERN ECONOMIC JOURNAL|
|Publisher:||UNIV NORTH CAROLINA|
|Number of Pages:||18|
|Page Range:||pp. 345-362|
|Access rights to Published version:||Restricted or Subscription Access|
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