The aggregate change in shares and the level of stock prices

William R. Nelson

No 1999-08, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: The average change in shares of equity is negatively correlated with estimates of the equity premium calculated using the dividend-ratio model of Campbell and Shiller, as well as with a variant of the model written in terms of the earnings-price ratio. This correlation is consistent with corporations issuing equity when it is a relatively inexpensive source of finance and repurchasing equity when it is a relatively good investment. However, when the retirement of shares resulting from mergers are included, the average change in shares is no longer significantly correlated with the equity premium.

Keywords: Stock - Prices; Rate of return (search for similar items in EconPapers)
Date: 1999
New Economics Papers: this item is included in nep-cfn and nep-fin
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Citations: View citations in EconPapers (7)

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