Stock price booms and expected capital gains
Adam, Klaus
Beutel, Johannes
Marcet, Albert
Universitat Autònoma de Barcelona. Unitat de Fonaments de l'Anàlisi Econòmica
Universitat Autònoma de Barcelona. Institut d'Anàlisi Econòmica

Imprint: Universitat Autònoma de Barcelona. Unitat de Fonaments de l'Anàlisi Econòmica 2014
Description: 54 p.
Abstract: The booms and busts in U. S. stock prices over the post-war period can to a large extent be explained by fluctuations in investors' subjective capital gains expectations. Survey measures of these expectations display excessive optimism at market peaks and excessive pessimism at market throughs. Formally incorporating subjective price beliefs into an otherwise standard asset pricing model with utility maximizing investors, we show how subjective belief dynamics can temporarily delink stock prices from their fundamental value and give rise to asset price booms that ultimately result in a price bust. The model successfully replicates (1) the volatility of stock prices and (2) the positive correlation between the price dividend ratio and expected returns observed in survey data. We show that models imposing objective or 'rational' price expectations cannot simultaneously account for both facts. Our findings imply that large part of U. S. stock price fluctuations are not due to standard fundamental forces, instead result from self-reinforcing belief dynamics triggered by these fundamentals.
Rights: L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons: Creative Commons
Language: Anglès.
Series: Working papers
Series: Working papers ; 948.14
Document: workingPaper
Subject: Preus ; Stock price

Adreça alternativa: https://hdl.handle.net/2072/253881


54 p, 406.6 KB

The record appears in these collections:
Research literature > Working papers > Fundamentals Unit of the Economic Analysis. Working papers

 Record created 2015-09-08, last modified 2019-12-17



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