An International Analysis of Earnings, Stock Prices and Bond Yields
This paper assesses the contemporaneous relationship between stock prices, earnings and long-term government bond yields for a large number of countries. The time period of our data spans several decades. In a time series framework our analysis first tests the presence of a long-term contemporaneous relationship between these three variables (the so-called Fed model). Next, we assess if government bond yields play a significant role in the long-run relationship. Our empirical results question the validity of the Fed model in the sense that we show that long-term market movements are mainly driven by the earnings yield and not the differential between bond and earnings yields. As such, our analysis validates the results of <link rid="b3">Asness (2003)</link> for a much larger collection of countries while using a dynamic time series (cointegration) framework. Finally, we also show that changes in long-term government bond yields have a short-term impact on stock prices. Copyright 2007 The Authors Journal compilation (c) 2007 Blackwell Publishing Ltd.
Year of publication: |
2007-04
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Authors: | Durré, Alain ; Giot, Pierre |
Published in: |
Journal of Business Finance & Accounting. - Wiley Blackwell, ISSN 0306-686X. - Vol. 34.2007-04, 3-4, p. 613-641
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Publisher: |
Wiley Blackwell |
Saved in:
freely available
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