Equity Risk Premia, Corporate Profit Forecasts, and Investor Sentiment around the Stock Crash of October 1987

Jeremy J Siegel

The Journal of Business, 1992, vol. 65, issue 4, 557-70

Abstract: This paper confirms that changes in consensus corporate profit forecasts and interest rates were completely unable to explain the rise and subsequent collapse of stock prices during 1987. The equity risk premium would have had to fall and then rise by about 4 percentage points to explain the behavior of stock prices around the crash on the basis of standard valuation models. Such shifts did not occur during the 1990-91 stock market cycle. There was, however, an unusually wide divergence of future profit forecasts before the crash, a phenomenon that may have left the market vulnerable to shifting investing sentiment. Copyright 1992 by University of Chicago Press.

Date: 1992
References: Add references at CitEc
Citations: View citations in EconPapers (20)

Downloads: (external link)
http://dx.doi.org/10.1086/296585 full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucp:jnlbus:v:65:y:1992:i:4:p:557-70

Access Statistics for this article

More articles in The Journal of Business from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().