An International Analysis of Earnings, Stock Prices and Bond Yields

51 Pages Posted: 26 Aug 2005

See all articles by Alain Durré

Alain Durré

European Central Bank (ECB) - Directorate General Economics; IéSEG - Université Catholique de Lille; National Center for Scientific Research - LEM

Pierre Giot

Facultés Universitaires Notre-Dame de la Paix (FUNDP)

Multiple version iconThere are 3 versions of this paper

Date Written: August 2005

Abstract

This paper assesses the possible contemporaneous relationship between stock index prices, earnings and long-term government bond yields for a large number of countries and over a time period that spans several decades. In a cointegration framework, our analysis looks at three hypotheses. First, is there a long-term contemporaneous relationship between earnings, stock prices and government bond yields? Second, does a deviation from this possible long-run equilibrium impact stock prices such that the equilibrium is restored? Third, do government bond yields play a significant role in the long-run relationship or does the latter only involve stock prices and earnings? We also study the short-term impact of changes in long-term government bond yields on stock prices and discuss our short-term and long-term results in light of the recent developments regarding the so-called Fed model.

Keywords: stock indexes, earnings, long-run relationships, interest rates, inflation, market valuation

JEL Classification: C13, C22, F31, G14

Suggested Citation

Durre, Alain C. J. and Giot, Pierre, An International Analysis of Earnings, Stock Prices and Bond Yields (August 2005). ECB Working Paper No. 515. Available at SSRN: https://ssrn.com/abstract=775426

Alain C. J. Durre (Contact Author)

European Central Bank (ECB) - Directorate General Economics ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

IéSEG - Université Catholique de Lille ( email )

3, rue de la Digue
F-59800 Lille
France

National Center for Scientific Research - LEM ( email )

106-112 Boulevard de l'Hopital
F- 75647 Paris Cedex 13
France

Pierre Giot

Facultés Universitaires Notre-Dame de la Paix (FUNDP) ( email )

Rempart de la Vierge 8
B-5000 Namur
Belgium

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