Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/178531 
Year of Publication: 
2011
Citation: 
[Journal:] Journal of Risk and Financial Management [ISSN:] 1911-8074 [Volume:] 4 [Issue:] 1 [Publisher:] MDPI [Place:] Basel [Year:] 2012 [Pages:] 97-132
Publisher: 
MDPI, Basel
Abstract: 
We study fluctuations in stock prices using a framework derived from the present value model augmented with a macroeconomic factor. The fundamental value is derived as the expected present discounted value of broad dividends that include, in addition to traditional cash dividends, other payouts to shareholders. A stochastic discount factor motivated by the consumption-based asset pricing model is utilized. A single macroeconomic factor, namely the output gap determines the non-fundamental component of stock prices. A resulting trivariate Vector Autoregression (TVAR) model of stock prices, broad dividends, and the output gap shows evidence of cointegration in the DJIA and S&P 500 index data. Nonetheless, a sup augmented Dickey-Fuller test reveals existence of periodically collapsing bubbles in S&P 500 data during the late 1990s.
Subjects: 
stock prices
broad dividends
macro factors
cointegration
periodically collapsing bubbles
JEL: 
E44
E47
G12
G1
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-sa Logo
Document Type: 
Article

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