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Stock Price, Real Riskless Interest Rate and Learning

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  • Zhang, Tongbin

Abstract

In this paper, I first discover how real riskless interest rate, the tool for conducting monetary policy, is empirically related to stock price. Then, consumption based asset pricing model with rational expectations has been shown to fail in generating the same relationship. However, allowing a small deviation from RE by introducing learning mechanism can quantitatively account for the weak relationship between stock price and the risk-free interest rate. Therefore, I claim that this model could be favorable workhorse for studying monetary policy and asset price.

Suggested Citation

  • Zhang, Tongbin, 2014. "Stock Price, Real Riskless Interest Rate and Learning," MPRA Paper 57090, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:57090
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    File URL: https://mpra.ub.uni-muenchen.de/69049/9/MPRA_paper_69049.pdf
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    References listed on IDEAS

    as
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    6. Klaus Adam & Albert Marcet & Juan Pablo Nicolini, 2016. "Stock Market Volatility and Learning," Journal of Finance, American Finance Association, vol. 71(1), pages 33-82, February.
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    More about this item

    Keywords

    Stock Price; Riskless Interest Rate; Correlation; Learning;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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