Earnings Growth and the Bull Market of the 1990s: Is There a Case for Rational Exuberance?

Charles Nelson and Jinho Bae

No 452, Econometric Society 2004 Far Eastern Meetings from Econometric Society

Abstract: This paper examines whether permanent earnings growth, crucial to stock valuation, increased during the last decade as suggested by proponents of the 'New Economy.' Using S\&P 500 earnings for 1951-2000, we do not find strong evidence of either a one-time structural break or gradual change. However, the confidence interval on permanent earnings growth is wide enough to include an increase that is consistent with the bull market of the late 1990s. Thus we cannot reject a rational basis for that exuberance

Keywords: Irrational exuberance; New Economy; Earnings growth; Bull market (search for similar items in EconPapers)
JEL-codes: E44 G14 (search for similar items in EconPapers)
Date: 2004-08-11
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Journal Article: Earnings growth and the bull market of the 1990s: Is there a case for rational exuberance? (2007)
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