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STOCK PRICE EFFECTS OF PERMANENT AND TRANSITORY SHOCKS
Author(s) -
CROWDER WILLIAM J.,
WOHAR MARK E.
Publication year - 1998
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1998.tb01735.x
Subject(s) - economics , dividend , stock (firearms) , econometrics , exploit , stock price , financial economics , monetary economics , series (stratigraphy) , finance , computer science , mechanical engineering , paleontology , computer security , engineering , biology
This paper exploits the long‐run equilibrium relationship between stock prices and dividends, implied by the present value model, to structurally identify a dynamic model that governs the behavior of stock prices. The innovations to the data are dichotomized into those that leave a permanent imprint on both series and those that have only transitory effects. Unlike previous studies, however, we do not impose arbitrary identifying restrictions to decompose the joint process, restrictions that may not be consistent the data. ( JEL C12, C32, E24)