Financial Market Shocks and the Macroeconomy

55 Pages Posted: 30 Aug 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: August 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 incumbent publicly traded firms and privately held new entrants. In this setting the equilibrium relation among stock prices and both future dividends and aggregate output depends on the strategic environment in which these firms operate. In general, under reasonable conditions, the relations between prices, dividends, and economic output in our framework are consistent with empirical evidence in the macroliterature. We also generate new, potentially testable, implications.

Suggested Citation

Subrahmanyam, Avanidhar and Titman, Sheridan, Financial Market Shocks and the Macroeconomy (August 2013). NBER Working Paper No. w19383. Available at SSRN: https://ssrn.com/abstract=2318285

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

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