STOCK PRICE EFFECTS OF PERMANENT AND TRANSITORY SHOCKS

This paper exploits the long‐run equilibrium relationship between stock prices and dividends, implied by the present value model, to structurally identify a dynamic model that governs the behavior of stock prices. The innovations to the data are dichotomized into those that leave a permanent imprint...

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Bibliographic Details
Published in:Economic inquiry 1998-10, Vol.36 (4), p.540-552
Main Authors: CROWDER, WILLIAM J., WOHAR, MARK E.
Format: Article
Language:English
Subjects:
Dividends
Econometrics
Economic aspects
Economic models
Present value
Prices
Prices and rates
Stock prices
Stock-exchange
Stocks
Studies
Variance analysis
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Summary:This paper exploits the long‐run equilibrium relationship between stock prices and dividends, implied by the present value model, to structurally identify a dynamic model that governs the behavior of stock prices. The innovations to the data are dichotomized into those that leave a permanent imprint on both series and those that have only transitory effects. Unlike previous studies, however, we do not impose arbitrary identifying restrictions to decompose the joint process, restrictions that may not be consistent the data. (JEL C12, C32, E24)
ISSN:0095-2583
1465-7295
DOI:10.1111/j.1465-7295.1998.tb01735.x