The Resource Why Are Stock Market Returns Correlated with Future Economic Activity?
Why Are Stock Market Returns Correlated with Future Economic Activity?
Resource Information
The item Why Are Stock Market Returns Correlated with Future Economic Activity? represents a specific, individual, material embodiment of a distinct intellectual or artistic creation found in Bowdoin College Library.This item is available to borrow from 1 library branch.
Resource Information
The item Why Are Stock Market Returns Correlated with Future Economic Activity? represents a specific, individual, material embodiment of a distinct intellectual or artistic creation found in Bowdoin College Library.
This item is available to borrow from 1 library branch.
- 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
- Note
- 1261
- Label
- Why Are Stock Market Returns Correlated with Future Economic Activity?
- Title
- Why Are Stock Market Returns Correlated with Future Economic Activity?
- 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?
- 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?
- Note
- 1261
- Control code
- ICPSR01261.v1
- Governing access note
- Access restricted to subscribing institutions
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<div class="citation" vocab="http://schema.org/"><i class="fa fa-external-link-square fa-fw"></i> Data from <span resource="http://link.bowdoin.edu/portal/Why-Are-Stock-Market-Returns-Correlated-with/kOam3yqBTBw/" typeof="Book http://bibfra.me/vocab/lite/Item"><span property="name http://bibfra.me/vocab/lite/label"><a href="http://link.bowdoin.edu/portal/Why-Are-Stock-Market-Returns-Correlated-with/kOam3yqBTBw/">Why Are Stock Market Returns Correlated with Future Economic Activity?</a></span> - <span property="potentialAction" typeOf="OrganizeAction"><span property="agent" typeof="LibrarySystem http://library.link/vocab/LibrarySystem" resource="http://link.bowdoin.edu/"><span property="name http://bibfra.me/vocab/lite/label"><a property="url" href="http://link.bowdoin.edu/">Bowdoin College Library</a></span></span></span></span></div>
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<div class="citation" vocab="http://schema.org/"><i class="fa fa-external-link-square fa-fw"></i> Data from <span resource="http://link.bowdoin.edu/portal/Why-Are-Stock-Market-Returns-Correlated-with/kOam3yqBTBw/" typeof="Book http://bibfra.me/vocab/lite/Item"><span property="name http://bibfra.me/vocab/lite/label"><a href="http://link.bowdoin.edu/portal/Why-Are-Stock-Market-Returns-Correlated-with/kOam3yqBTBw/">Why Are Stock Market Returns Correlated with Future Economic Activity?</a></span> - <span property="potentialAction" typeOf="OrganizeAction"><span property="agent" typeof="LibrarySystem http://library.link/vocab/LibrarySystem" resource="http://link.bowdoin.edu/"><span property="name http://bibfra.me/vocab/lite/label"><a property="url" href="http://link.bowdoin.edu/">Bowdoin College Library</a></span></span></span></span></div>