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Earnings growth and the bull market of the 1990s: Is there a case for rational exuberance?

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  • Bae, Jinho
  • Nelson, Charles R.

Abstract

This paper examines whether permanent earnings growth, crucial to stock valuation, increased during the last decade as suggested by proponents of the 'New Economy.' Using S\&P 500 earnings for 1951-2000, we do not find strong evidence of either a one-time structural break or gradual change. However, the confidence interval on permanent earnings growth is wide enough to include an increase that is consistent with the bull market of the late 1990s. Thus we cannot reject a rational basis for that exuberance
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  • Bae, Jinho & Nelson, Charles R., 2007. "Earnings growth and the bull market of the 1990s: Is there a case for rational exuberance?," Journal of Macroeconomics, Elsevier, vol. 29(4), pages 690-707, December.
    • Handle: RePEc:eee:jmacro:v:29:y:2007:i:4:p:690-707
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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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