Stock Market Volatility and Corporate Investment
October 1, 1995
More Formats on IMF eLibrary
Order a Print CopyDisclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary
Despite concerns are often voiced on the so called “excess volatility” of the stock market, little is known about the implications of market volatility for the real economy. This paper examines whether the stock market volatility affects real fixed investment. The empirical evidence obtained from the US data shows that market volatility has independent effects on investment over and above that of stock returns. Volatility and its changes are negatively related to investment growth. To the extent volatility depresses fixed capital formation and hence future income growth, the results suggest the desirability of reducing stock market volatility.
Subject: Asset prices, Financial institutions, Financial markets, National accounts, Options, Prices, Return on investment, Stock markets, Stocks
Keywords: Asset prices, investment, investment equation, NYSE stock portfolio, Options, Return on investment, stock, stock market, stock market price, stock market return, stock market valuation, stock market volatility, Stock markets, Stocks, value-weighted New York Stock Exchange, WP
Pages:
26
Volume:
1995
DOI:
Issue:
102
Series:
Working Paper No. 1995/102
Stock No:
WPIEA1021995
ISBN:
9781451852585
ISSN:
1018-5941
