Earnings Growth and the Bull Market of the 1990s: Is There a Case for Rational Exuberance?

39 Pages Posted: 21 Oct 2004

Date Written: August 2004

Abstract

This paper examines whether permanent earnings growth, crucial to stock valuation, increased during the 1990s as suggested by proponents of the 'New Economy. Using S&P 500 earnings for 1951-2000, we do not find strong evidence of either a one-time structural break or gradual change. However, the confidence interval on permanent earnings growth is wide enough to include an increase that is roughly consistent with the bull market of the late 1990s. Thus we cannot reject a rational basis for that exuberance.

Keywords: Irrational exuberance, New Economy, Earnings growth, Bull market

JEL Classification: E40, E44

Suggested Citation

Bae, Jinho and Nelson, Charles R., Earnings Growth and the Bull Market of the 1990s: Is There a Case for Rational Exuberance? (August 2004). Available at SSRN: https://ssrn.com/abstract=607604 or http://dx.doi.org/10.2139/ssrn.607604

Jinho Bae

Konkuk University ( email )

1, Hwayang-dong
Gwangjin-gu
Seoul, 143-071
Korea
82-2-450-3646 (Phone)
82-2-446-3615 (Fax)

Charles R. Nelson (Contact Author)

Dept of Economics ( email )

Box 353330
Seattle, WA 98195-3330
United States

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