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Keywords:Stock - Prices 

Working Paper
On the frequency of large stock returns: putting booms and busts into perspective
Numerous articles have investigated the distribution of share prices, and find that the yields are leptokurtic. There is still controversy about the amount of leptokurtosis, and hence about the most appropriate distribution to use in modeling returns. This controversy has proven hard to resole, as the alternatives are non-nested. We propose to employ extreme value theory focusing exclusively on the larger observations, in order to assess the leptokurtosis within a unified framework. This enables one to generate robust probabilities on large changes, which put the recent stock market swings into historical perspective.
AUTHORS: Jansen, Dennis W.; Casper de Vries
DATE: 1988

Journal Article
The recent ascent in stock prices: how exuberant are you?
Soaring stock prices continue to pit those who claim that investors are paying too much against those who believe stocks are worth even more. Prices of stocks are determined by people's perceptions of worth, which are themselves based on expectations for the future Although we cannot be sure whether the market is over- or undervalued, we can clarify the factors that determine stock prices and discover the assumptions underlying our expectations. Assessing the consistency of these assumptions may help keep our exuberance in check.
AUTHORS: Carlson, John B.
DATE: 1999

Journal Article
Why policymakers might care about stock market bubbles
This Commentary makes a case for Fed action in the event of a stock market bubble. Because stock market prices serve as a signal to business managers to invest, bubbles can mislead managers into investing when it is not profitable. The overinvestment, which becomes apparent after the bubble bursts, can lead to a period of low investment, which can cause a recession. Policymakers may wish to step in to end a bubble before stock prices get too far out of line relative to their fundamentals.
AUTHORS: Gomme, Paul
DATE: 2005

Journal Article
Investor expectations and fundamentals: disappointment ahead?
The average annual return of the S&P 500 since 1994 has exceeded 25 percent. Confidence is high and investors are looking forward to continued above-average returns. The authors of this Economic Commentary attempt to reconcile investors' expectations with a decline in the equity premium, using a standard approach to stock-price valuation.
AUTHORS: Pelz, Eduard A.; Carlson, John B.
DATE: 2000

Journal Article
Stock prices and output growth: an examination of the credit channel
When stock market values fall, we know that investors expect lower economic growth in the future. But can stock market declines actually affect future growth? There is some evidence that they can-through the credit channel.
AUTHORS: Fuerst, Timothy S.; Carlstrom, Charles T.; Ioannidou, Vasso P.
DATE: 2002

Working Paper
How reliable are adverse selection models of the bid-ask spread?
Theoretical models of the adverse selection component of bid-asked spreads predict the component arises from asymmetric information about a firm's fundamental value. We test this prediction using two well known models [Glosten and Harris (1988) and George, Kaul, and Nimalendran (1991)] to estimate the adverse selection component for closed-end funds. Closed-end funds hold diversified portfolios and report their net asset values on a weekly basis. Thus, there should be little uncertainty about their fundamental values and their adverse selection components should be minimal. Estimates of the component from the two models, however, average 19 and 52 percent of the spread. These estimates, while smaller than corresponding estimates from common stocks, are large enough to raise doubts about the reliability of these models.
AUTHORS: Wheatley, Simon M.; Neal, Robert
DATE: 1995

Working Paper
Firm characteristics, unanticipated inflation, and stock returns
AUTHORS: Pearce, Douglas K.; Roley, V. Vance
DATE: 1988

Working Paper
Do stock prices follow interest rates or inflation?
Market analysts often forecast changes in stock prices by comparing earnings-price ratios on stocks to nominal interest rates. This paper shows that stock prices have followed inflation more closely than interest rates over the last thirty years. This result has implications for recent stock valuations, because the spread between nominal interest rates and inflation has recently been above historic averages. That is, stock prices appear more overvalued when the earnings-price ratio is compared to nominal interest rates than when the earnings-price ratio is compared to inflation. Our result also helps explain the behavior of stock prices during the 1970s.
AUTHORS: Bishop, David G.; Golob, John E.
DATE: 1996

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