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International evidence of temporary and permanent stock-price innovations: a multivariate approach

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  • Philip Shively

Abstract

The existence, size, and dynamic effect of temporary and permanent stock-price innovations has been a prominent issue in financial economics. Previous univariate and multivariate studies find that temporary innovations exist, but they do not yield a consensus regarding the size and dynamic effect of the temporary and permanent stock-price innovations. Real interest rates are intrinsically related to real stock prices through standard present-value models. This note applies Blanchard and Quah's (American Economic Review, 79, 665-673, 1989) bivariate, structural VAR model to monthly real stock returns and real interest rates from six major international financial markets including the US. Using 12 monthly VAR lags in order to capture annual variation in stock prices, this model finds a dramatic range in the size and dynamic effect of temporary and permanent stock-price innovations across the six international financial markets.

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  • Philip Shively, 2003. "International evidence of temporary and permanent stock-price innovations: a multivariate approach," Applied Economics Letters, Taylor & Francis Journals, vol. 10(8), pages 499-503.
    • Handle: RePEc:taf:apeclt:v:10:y:2003:i:8:p:499-503
    DOI: 10.1080/1350485032000116263
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    Cited by:

    1. Massimo Guidolin & Stuart Hyde & David McMillan & Sadayuki Ono, 2014. "Does the Macroeconomy Predict UK Asset Returns in a Nonlinear Fashion? Comprehensive Out-of-Sample Evidence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 76(4), pages 510-535, August.
    2. Guidolin, Massimo & Hyde, Stuart & McMillan, David & Ono, Sadayuki, 2009. "Non-linear predictability in stock and bond returns: When and where is it exploitable?," International Journal of Forecasting, Elsevier, vol. 25(2), pages 373-399.
    3. Shively, Philip A., 2007. "Asymmetric temporary and permanent stock-price innovations," Journal of Empirical Finance, Elsevier, vol. 14(1), pages 120-130, January.

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