Fundamental UK stock prices as determined by the macroeconomy

Angela Black, Patricia Fraser and Nicolaas Groenewold
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Patricia Fraser: Professor of Finance in the Department of Accountancy and Finance at the University of Aberdeen
Nicolaas Groenewold: Associate Professor in the Department of Economics at the University of Western Australia

Journal of Asset Management, 2003, vol. 4, issue 1, No 2, 5-9

Abstract: Abstract This study uses a restricted vector-autoregressive model to derive a fundamental share price index that relates aggregate real share prices to real macroeconomic activity in the UK. The sample period covered is January 1974–December 2002. The analysis shows that actual (real) stock prices in the UK take long swings away from fundamental stock prices. It is noted that actual (real) stock prices fell below fundamental (real) stock prices in December 2002 for the first time since 1990.

Keywords: real economy; fundamental share prices; vector-autoregression (search for similar items in EconPapers)
Date: 2003
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DOI: 10.1057/palgrave.jam.2240091

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