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Stock prices and GDP in the long run
Stockholm University, Faculty of Social Sciences, Department of Economics.
2018 (English)In: Journal of Applied Finance and Banking, ISSN 1792-6580, E-ISSN 1792-6599, Vol. 8, no 4, p. 107-126Article in journal (Refereed) Published
Abstract [en]

Previous studies have documented long run equilibrium relationships between either stock prices and labour income or dividends and consumption. In a general equilibrium stochastic growth model, these variables are related in the long run because they are all driven by the same stochastic trend - the fundamental development of productivity. We show that national stock price indices are cointegrated with domestic and foreign GDP in the G7 countries. Higher domestic productivity increase both domestic GDP and domestic stock prices. In the panel, countries with favorable GDP developments also have higher stock prices. The relationship between relative GDP and relative stock prices is stronger for countries with markedly different GDP growth compared to their trading partners.

Place, publisher, year, edition, pages
2018. Vol. 8, no 4, p. 107-126
Keywords [en]
Stock prices, Long Run Risks, Cointegration
National Category
Economics
Identifiers
URN: urn:nbn:se:su:diva-163984OAI: oai:DiVA.org:su-163984DiVA, id: diva2:1277518
Available from: 2019-01-10 Created: 2019-01-10 Last updated: 2019-01-10Bibliographically approved

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