Time-Varying Drivers of Stock Prices

51 Pages Posted: 9 Apr 2022 Last revised: 31 May 2023

See all articles by Dat Mai

Dat Mai

University of Missouri at Columbia

Date Written: January 10, 2022

Abstract

This paper provides novel evidence of the time-varying roles of subjective expectations in explaining stock price variations from 1976 to 2020. Cash flow expectations matter more during times of financial uncertainty and recessions, especially among the hardest-hit industries such as Telecommunications during the Dot-com Bubble, Financials during the Great Recession, and Healthcare during the Covid-19 pandemic. Conversely, discount rates explain more price variations during expansionary periods. Finally, inflation expectations, while accounting for 60% of price fluctuations in the high inflationary environment before 2000, play a negligible role thereafter.

Keywords: subjective expectations, price variations, Bayesian breaks, recessions, financial uncertainty, COVID-19

JEL Classification: G00, G01, G10, G12, G14

Suggested Citation

Mai, Dat, Time-Varying Drivers of Stock Prices (January 10, 2022). Available at SSRN: https://ssrn.com/abstract=4038483 or http://dx.doi.org/10.2139/ssrn.4038483

Dat Mai (Contact Author)

University of Missouri at Columbia ( email )

Columbia, MO 65201
United States

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

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