Nonlinearity and Endogeneity in Macro-Asset Pricing
March 1, 1995
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Summary
We find nonlinear feedback between the stock market and certain macroeconomic factors. This evidence calls into question the adequacy of these factors as a basis for a linear pricing model. It also means that the interaction between the economy and the stock market is more complicated than given by the simple relationship in Chen, Roll and Ross (1986). It also suggests that the univariate evidence for nonlinear dynamics in the stock market may be due to the complicated relationship between the macroeconomy and the stock market.
Subject: Asset prices, Consumption, Industrial production, Inflation, Stocks
Keywords: time series, WP
Pages:
30
Volume:
1995
DOI:
Issue:
032
Series:
Working Paper No. 1995/032
Stock No:
WPIEA0321995
ISBN:
9781451845082
ISSN:
1018-5941
