Nonlinearity and Endogeneity in Macro-Asset Pricing

Charles Kramer and Craig Hiemstra

No 1995/032, IMF Working Papers from International Monetary Fund

Abstract: We find nonlinear feedback between the stock market and certain macroeconomic factors. This evidence calls into question the adequacy of these factors as a basis for a linear pricing model. It also means that the interaction between the economy and the stock market is more complicated than given by the simple relationship in Chen, Roll and Ross (1986). It also suggests that the univariate evidence for nonlinear dynamics in the stock market may be due to the complicated relationship between the macroeconomy and the stock market.

Keywords: WP; time series (search for similar items in EconPapers)
Pages: 30
Date: 1995-03-01
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