Variation of Share Prices Due to Fundamental and Non-Fundamental Innovations

43 Pages Posted: 11 May 2001

See all articles by David E. Allen

David E. Allen

School of Mathematics and Statistics, The University of Sydney; Financial Research Network (FIRN); Department of Finance; School of Business and Law, Edith Cowan University

Wenling Joey Yang

Securities Industry Research Centre of Asia Pacific (SIRCA); School of Finance and Business Economics

Date Written: undated

Abstract

This paper examines the deviation of Australian stock prices from their fundamentals by decomposing stock price into four fundamental components and one non-fundamental component in three multivariate-moving-average models. The four components of stock prices, earnings, dividends, interest rates and excess stock returns are identified by the restrictions imposed on a Sims-Bernanke variance decomposition. Overall our findings suggest that, the stock price variability is only partially explained by fundamental factors as earnings and dividends, the rest can be due to time-varying interests and future excess stock returns. This conclusion further confirms the refection of simple present value model in determining stock price on the base of results from a time series dynamic framework.

Keywords: Fundamentals, Sims-Bernanke Variance Decomposition, Trivariate Moving Average Representation

JEL Classification: G12

Suggested Citation

Allen, David Edmund and Yang, Wenling Joey, Variation of Share Prices Due to Fundamental and Non-Fundamental Innovations (undated). EFMA 2001 Lugano Meetings. Available at SSRN: https://ssrn.com/abstract=269652 or http://dx.doi.org/10.2139/ssrn.269652

David Edmund Allen (Contact Author)

School of Mathematics and Statistics, The University of Sydney ( email )

School of Mathematics and Statistics F07
University of Sydney
Sydney, New South Wales 2006
Australia

HOME PAGE: http://www.maths.usyd.edu.au

Financial Research Network (FIRN)

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

HOME PAGE: http://www.firn.org.au

Department of Finance ( email )

Taiwan
Taiwan

School of Business and Law, Edith Cowan University

100 Joondalup Drive
Joondalup, WA 6027
Australia

HOME PAGE: http://www.dallenwapty.com

Wenling Joey Yang

Securities Industry Research Centre of Asia Pacific (SIRCA) ( email )

New South Wales 1215
Australia

School of Finance and Business Economics ( email )

100 Joondalup Drive
Joondalup, WA 6027
Australia
+618 9400 5099 (Phone)
+618 9400 5271 (Fax)

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