NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Do Stock Prices Move Together Too Much?

Robert S. Pindyck, Julio J. Rotemberg

NBER Working Paper No. 3324
Issued in April 1990
NBER Program(s):ME

We show that comovements of individual stock prices cannot be justified by economic fundamentals. This finding is a rejection of the present value model of security valuation. Unlike other tests of this model, ours is robust in that it allows for volatility in ex ante rates of return. The only constraint we impose is that investors' utilities are functions of a single consumption index. This implies that changes in discount rates must be related to changes in macroeconomic variables, and hence stock prices of companies in unrelated lines of business should move together only in response to changes in current or expected future macroeconomic conditions. We also show that this constraint implies that any priced factors in the APT model must be related to macroeconomic variables. Hence our results are also a rejection of the APT, so constrained.

download in pdf format
   (571 K)

download in djvu format
   (390 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w3324

Published: "The Co-movement of Stock Prices,[ Quarterly Journal of Economics, Nov. 1993]"

Users who downloaded this paper also downloaded* these:
Sicherman w4279 Gender Differences in Departure from a Large Firm
Dow and Gorton w4314 Arbitrage Chains
Dumas, Jennergren, and Naslund w4458 Realignment Risk and Currency Option Pricing in Target Zones
Altonji and Williams w4133 The Effects of Labor Market Experience, Job Seniority, and Job Mobility on Wage Growth
Fung and Staiger w4847 Trade Liberalization and Trade Adjustment Assistance
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us