Malkhozov, Aytek and Tamoni, Andrea (2015) News shocks and asset prices. Systemic Risk Centre Discussion Papers (34). Systemic Risk Centre, The London School of Economics and Political Science, London, UK.
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Abstract
We study the importance of anticipated shocks (news) for understanding the comovement between macroeconomic quantities and asset prices. We find that four-quarter anticipated investment shocks are an important source of fluctuations for macroeconomic variables: they account for about half of the variance in hours and investment. However, it is the four-quarter anticipated productivity shock that is driving a large fraction of consumption and most of the price-dividend ratio fluctuations. These productivity news are key for the model to reproduce the empirical tendency for stock-market valuations and excess returns to lead the business cycle. Importantly, a model that does not use asset price information in the estimation would downplay the role of productivity news; in this case, the model implies that return moves (almost) completely contemporaneously with the economic activity, counterfactually with the data.
| Item Type: | Monograph (Discussion Paper) |
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| Official URL: | http://www.systemicrisk.ac.uk |
| Additional Information: | © 2015 The Authors |
| Divisions: | Systemic Risk Centre |
| Subjects: | H Social Sciences > HB Economic Theory |
| JEL classification: | C - Mathematical and Quantitative Methods > C2 - Econometric Methods: Single Equation Models; Single Variables > C22 - Time-Series Models E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates |
| Date Deposited: | 19 May 2015 11:18 |
| Last Modified: | 11 Dec 2024 19:18 |
| Projects: | ES/K002309/1 |
| Funders: | Economic and Social Research Council |
| URI: | http://eprints.lse.ac.uk/id/eprint/62004 |
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