The Stock Market and Investment

Robert Barro

No 2925, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Changes in real stock-market prices have a lot of explanatory value of the growth rate of U.S. aggregate business investment, especially for long samples that begin in 1891 or 1921. Moreover, for the period since 1921 where data on a q-type variable are available, the stock market dramatically outperforms q. The change in real stock prices also retains its predictive value in the presence of a cash-flow variable, such as after-tax corporate profits. Basically similar results apply to Canadian investment, except that the U.S. stock market turns out to have move predictive power than the Canadian market. I discuss some possible explanations for this puzzling finding, but none of the explanations seem all that convincing.

Date: 1989-04
Note: EFG
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Citations: View citations in EconPapers (5)

Published as The Review of Financial Studies, Vol. 3, No. 1, pp. 115-131, (1990).

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