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Keywords:Stock market 

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

Working Paper
Wealth effects and the consumption of leisure: retirement decisions during the stock market boom of the 1900s
It is well accepted that households increase consumption of goods and services in response to an unexpected increase in wealth. Consensus estimates of this wealth effect are in the range of 3 to 5 cents of additional consumption spending in the long run for each additional dollar of wealth. Economic theory also suggests that consumption of leisure, like consumption of goods and services, should increase with positive shocks to wealth. In this paper, we ask whether the run-up in equity prices during the 1990s led older workers to retire earlier than they had previously planned. We identify the effect by exploiting unique data on retirement expectations from the Health and Retirement Survey. Our econometric results suggest that respondents who held corporate equity immediately prior to the bull market of the 1990s retired, on average, 7 months earlier than other respondents.
AUTHORS: Julia Lynn Coronado & Maria Perozek
DATE: 2003

Journal Article
Stock market fundamentals
An explanation of the primary factors driving stock market fundamentals and an examination of how well those factors explain--or fail to explain--current market trends.
AUTHORS: Haubrich, Joseph G.
DATE: 1997

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
Stock-market gyrations and investment
An analysis of the relationship between stock-market gyrations and business fixed investment, using the q theory (the ratio of the market value of financial liabilities to the replacement value of physical assets).
AUTHORS: Osterberg, William P.
DATE: 1987

Journal Article
A retrospective on the stock market in 2000
During late 1998 and much of 1999, the price earnings ratio (P/E) of the S&P 500 index reached unprecedented levels. This was especially evident for the largest 18 technology firms, whose market-weighted P/E exceeded 125 in March of last year. These valuations, which dominated the NASDAQ, proved unsustainable. This Commentary reviews factors that affect P/E ratios and concludes that investors' expectations for earnings growth were overly optimistic, especially for large-cap technology stocks, and that investors could have known this before the bubble burst.
AUTHORS: Carlson, John B.; Pelz, Eduard A.
DATE: 2001

Working Paper
Market timing strategies that worked
In this paper, we present a few simple market-timing strategies that appear to outperform the "buy-and-hold" strategy, with real-time data from 1970 to 2000. Our focus is on spreads between the E/P ratio of the S&P 500 index and interest rates. Extremely low spreads, as compared to their historical ranges, appear to predict higher frequencies of subsequent market downturns in monthly data. We construct "horse races" between switching strategies based on extremely low spreads and the market index. Switching strategies call for investing in the stock market index unless spreads are lower than predefined thresholds. We find that switching strategies outperformed the market index in the sense that they provide higher mean returns and lower variances. In particular, the strategy based on the spread between the E/P ratio and a short-term interest rate comfortably and robustly beat the market index even when transaction costs are incorporated.
DATE: 2002

Working Paper
Do the spreads between the E/P ratio and interest rates contain information on future equity market movements?
We examine the usefulness of the spreads between the e/p ratio of the S&P 500 index and the yields on 3-month and 10-year Treasury securities as indicators of future market conditions. We find that while spreads are not particularly useful in a regression framework, the extreme values of the spreads do contain information on the market outlook. Specifically, for the period of 1967 to 1997, portfolios that only invested in the stock index when the spreads were above their historical tenth percentile levels produced higher average returns (not statistically significant) and lower variances (statistically significant) than the stock index.
AUTHORS: Rolph, Doug; Shen, Pu
DATE: 1999

Working Paper
Does financial market development stimulate savings? Evidence from emerging market stock markets
This paper examines the empirical relation between financial market development, as measured by the stock market, and gross private savings rates in 16 emerging markets over 1982-1993. With data from all 16 countries, there is evidence of a significant positive relation between savings and stock market size and liquidity. When countries with outlying values for the stock market measures are excluded, however, all significance disappears. The results suggest that we should not assume that a growing or deepening stock market will necessarily be associated with higher savings rates.
AUTHORS: Bonser-Neal, Catherine; Dewenter, Kathryn L.
DATE: 1996

Working Paper
Bubbles, fundamentals, and investment: a multiple equation testing strategy
AUTHORS: Chirinko, Robert S.; Schaller, Huntley
DATE: 1993



Finance and Economics Discussion Series 28 items

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