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Pierre Giot

24 August 2005
WORKING PAPER SERIES - No. 515
Details
Abstract
This paper assesses the possible contemporaneous relationship between stock index prices, earnings and long-term government bond yields for a large number of countries and over a time period that spans several decades. In a cointegration framework, our analysis looks at three hypotheses. First, is there a long-term contemporaneous relationship between earnings, stock prices and government bond yields? Second, does a deviation from this possible long-run equilibrium impact stock prices such that the equilibrium is restored? Third, do government bond yields play a significant role in the long-run relationship or does the latter only involve stock prices and earnings? We also study the short-term impact of changes in long-term government bond yields on stock prices and discuss our short-term and long-term results in light of the recent developments regarding the so-called Fed model.
JEL Code
C13 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Estimation: General
C22 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models &bull Diffusion Processes
F31 : International Economics→International Finance→Foreign Exchange
G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading