US Share Prices and Real Supply and Demand Shocks

Patricia Fraser () and Nicolaas Groenewold ()
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Patricia Fraser: Department of Accountancy and Finance, Business School, University of Aberdeen
Nicolaas Groenewold: UWA Business School, The University of Western Australia

No 03-19, Economics Discussion / Working Papers from The University of Western Australia, Department of Economics

Abstract: Using theoretical foundations, VAR restrictions are imposed allowing demand and supply sources of output movement to be distinguished and the effects of their shocks on stock prices to be analysed. Stock prices are sensitive to all shocks although the influence from the real economy to the stock market is less important than shocks that are peculiar to the market itself. Decompositions using temporary/permanent and real economy/stock market distinctions suggest that the historical contribution of demand, supply and portfolio shocks to real stock price fluctuations changes over time – a feature that is particularly evident post mid-1990s.

Pages: 36 pages
Date: 2003
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