Working Paper

The aggregate change in shares and the level of stock prices


Abstract: The average change in shares of equity is negatively correlated with estimates of the equity premium calculated using the dividend-ratio model of Campbell and Shiller, as well as with a variant of the model written in terms of the earnings-price ratio. This correlation is consistent with corporations issuing equity when it is a relatively inexpensive source of finance and repurchasing equity when it is a relatively good investment. However, when the retirement of shares resulting from mergers are included, the average change in shares is no longer significantly correlated with the equity premium.

Keywords: Stock - Prices; Rate of return;

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Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 1999

Number: 1999-08