An International Analysis of Earnings, Stock Prices and Bond Yields

National Bank of Belgium Working Paper No. 73

53 Pages Posted: 13 Oct 2010

See all articles by Alain Durré

Alain Durré

European Central Bank (ECB) - Directorate General Economics; IéSEG - Université Catholique de Lille; National Center for Scientific Research - LEM

Pierre Giot

Facultés Universitaires Notre-Dame de la Paix (FUNDP)

Multiple version iconThere are 3 versions of this paper

Date Written: September 1, 2005

Abstract

This paper assesses the possible contemporaneous relationship between stock index prices, earnings and long-term government bond yields for a large number of countries and over a time period that spans several decades. In a cointegration framework, our analysis looks at three hypotheses. First, is there a long-term contemporaneous relationship between earnings, stock prices and government bond yields? Second, does a deviation from this possible long-run equilibrium impact stock prices such that the equilibrium is restored? Third, do government bond yields play a significant role in the long-run relationship or does the latter only involve stock prices and earnings? We also study the short-term impact of changes in long-term government bond yields on stock prices and discuss our short-term and long-term results in light of the recent developments regarding the so-called Fed model.

Keywords: stock indexes, earnings, long-run relationships, interest rates, inflation, market valuation

JEL Classification: C13, C22, F31, G14

Suggested Citation

Durre, Alain C. J. and Giot, Pierre, An International Analysis of Earnings, Stock Prices and Bond Yields (September 1, 2005). National Bank of Belgium Working Paper No. 73. Available at SSRN: https://ssrn.com/abstract=1690509 or http://dx.doi.org/10.2139/ssrn.1690509

Alain C. J. Durre (Contact Author)

European Central Bank (ECB) - Directorate General Economics ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

IéSEG - Université Catholique de Lille ( email )

3, rue de la Digue
F-59800 Lille
France

National Center for Scientific Research - LEM ( email )

106-112 Boulevard de l'Hopital
F- 75647 Paris Cedex 13
France

Pierre Giot

Facultés Universitaires Notre-Dame de la Paix (FUNDP) ( email )

Rempart de la Vierge 8
B-5000 Namur
Belgium

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