Stock Price Effects of Permanent and Transitory Shocks

William Crowder and Mark Wohar ()

Economic Inquiry, 1998, vol. 36, issue 4, 540-52

Abstract: 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, the authors do not impose arbitrary identifying restrictions to decompose the joint process, restrictions that may not be consistent with the data. Copyright 1998 by Oxford University Press.

Date: 1998
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