Financial Market Shocks and the Macroeconomy

56 Pages Posted: 1 Jan 2013 Last revised: 25 May 2013

See all articles by Avanidhar Subrahmanyam

Avanidhar Subrahmanyam

University of California, Los Angeles (UCLA) - Finance Area; Institute of Global Finance, UNSW Business School; Financial Research Network (FIRN)

Sheridan Titman

University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: May 8, 2013

Abstract

Feedback from stock prices to cash flows occurs because information revealed by firms’ stock prices influences the actions of competitors. We explore the implications of feedback within a noisy rational expectations setting with publicly listed and private firms. In our setting, stock prices are affected by fundamental information, observed by some investors, by unobserved shocks to participation by informationless traders, and by real investment. The equilibrium relations between total output, dividends, and market prices in our setting are consistent with regularities documented in the macro finance literature, and we also generate new, potentially testable, implications.

Keywords: information, financial markets, feedback

JEL Classification: G12, G14, G31

Suggested Citation

Subrahmanyam, Avanidhar and Titman, Sheridan, Financial Market Shocks and the Macroeconomy (May 8, 2013). Available at SSRN: https://ssrn.com/abstract=2195184 or http://dx.doi.org/10.2139/ssrn.2195184

Avanidhar Subrahmanyam (Contact Author)

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
310-825-5355 (Phone)
310-206-5455 (Fax)

Institute of Global Finance, UNSW Business School

Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Sheridan Titman

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
274
Abstract Views
1,370
rank
102,390
PlumX Metrics