Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/144287 
Year of Publication: 
2005
Series/Report no.: 
NBB Working Paper No. 73
Publisher: 
National Bank of Belgium, Brussels
Abstract: 
This paper assesses the possible contemporaneous relationship between stock index prices, earnings and long-term government bond yields for a large number of countries and over a time period that spans several decades. In a cointegration framework, our analysis looks at three hypotheses. First, is there a long-term contemporaneous relationship between earnings, stock prices and government bond yields? Second, does a deviation from this possible long-run equilibrium impact stock prices such that the equilibrium is restored? Third, do government bond yields play a significant role in the long-run relationship or does the latter only involve stock prices and earnings? We also study the short-term impact of changes in long-term government bond yields on stock prices and discuss our short-term and long-term results in light of the recent developments regarding the so-called Fed model.
Subjects: 
stock indexes
earnings
long-run relationships
interest rates
inflation
market valuation
JEL: 
C13
C22
F31
G14
Document Type: 
Working Paper

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