Stock Prices and Bond Yields: Can Their Comovements Be Explained in Terms of Present Value Models?

Robert Shiller and Andrea E. Beltratti

No 3464, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Real stock prices seem to overreact to changes in long-term interest rates. That is, real stock prices drop when long-term interest rates rise (and rise when they fall) more than would be implied by a rational expectations present value model where expectations are based on a vector autoregression. This overreaction is not associated with any overreaction to changes in the short-run inflation rate. Over the last century real stock prices have shown little reaction to changes in inflation rates, and according to the model they should show little reaction. These conclusions were reached from an analysis of annual data in the united states 1871 to 1989 and the united Kingdom 1918 to 1989.

Date: 1990-10
Note: ME
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Citations: View citations in EconPapers (6)

Published as Journal of Monetary Economics 30, pp. 25-46 (1992).

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Related works:
Journal Article: Stock prices and bond yields: Can their comovements be explained in terms of present value models? (1992)
Working Paper: Stock Prices and Bond Yields: Can Their Co-Movements Be Explained in Terms of Present Value Models? (1990)
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