What Moves Stock Prices? Evidence that UK Stock Prices Deviate from Fundamentals
39 Pages Posted: 11 Dec 2000
Date Written: November 2000
This article examines the deviation of the UK market index from market fundamentals implied by the simple dividend discount model and identifies other components that also affect price movements. The components are classified as permanent, temporary, excess stock returns and non-fundamental innovations in terms of a multivariate moving average model (Lee (1998)). We find that time varying discounted rates play an active role in explaining price deviations.
Keywords: Sims-Bernanke Variance Decomposition, Trivariate Moving Average
JEL Classification: G12, C13, C32, C51
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