The Resource Why Are Stock Market Returns Correlated with Future Economic Activity?

Why Are Stock Market Returns Correlated with Future Economic Activity?

Label
Why Are Stock Market Returns Correlated with Future Economic Activity?
Title
Why Are Stock Market Returns Correlated with Future Economic Activity?
Creator
Author
Contributor
Subject
Summary
Stock price, because it is a forward-looking variable, forecasts economic activities. An unexpected increase in stock price reflects that (1) future dividend growth is higher and/or (2) future discount rates are lower than previously anticipated. Therefore, the increase predicts higher output and investment. As well, other studies argue for an important relation between the expected stock market return and investment. In this paper, the author analyses the relative importance of these mechanisms by using Campbell and Shiller's (1988) method to decompose stock market return into three parts: expected return, a shock to the expected future return, and a shock to the expected future dividend growth. Contrary to the conventional wisdom, the author finds that dividend shocks are a rather weak predictor for future economic activities. Moreover, the expected return and shocks to the expected future return display different predictive patterns. The results shown here, collectively, explain why the forecasting power of stock market return is rather limited
http://library.link/vocab/creatorName
  • Guo, Hui
  • Inter-university Consortium for Political and Social Research [distributor]
Label
Why Are Stock Market Returns Correlated with Future Economic Activity?
Instantiates
Publication
Note
1261
Control code
ICPSR01261.v1
Governing access note
Access restricted to subscribing institutions
Label
Why Are Stock Market Returns Correlated with Future Economic Activity?
Publication
Note
1261
Control code
ICPSR01261.v1
Governing access note
Access restricted to subscribing institutions

Library Locations

    • Bowdoin College LibraryBorrow it
      3000 College Station, Brunswick, ME, 04011-8421, US
      43.907093 -69.963997
Processing Feedback ...