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Dissertation
Macroeconomic determinants of U.S. stock prices: are the business cycle and the level of economic activity moderating factors?
Doctor of Philosophy (Ph.D.), Drexel University
Jun 2000
DOI:
https://doi.org/10.17918/00000653
Abstract
Although statistically significant relationships between stock prices and various macroeconomic variables have often been uncovered in previous research, the results are inconsistent and the nature of these relationships are not well understood. The goal of this thesis is to determine whether the relationships between stock prices and macroeconomic variables are moderated by the level of aggregate economic activity and/or the business cycle. The deviation of industrial production away from a quadratic trend is used to designate periods of low, medium and high economic activity. In addition, NBER business cycle peak and trough dates are used to separate the business cycle into four stages. Hypotheses that describes how stock returns and their fundamental determinants (expected economic activity and discount rates) vary over different business cycle stages are developed and tested. Based on these relationships, additional hypotheses about how the relationships between stock returns and other macroeconomic variables (inflation, the money supply, the term premium the risk premium and oil prices) vary over different levels of economic activity and business cycle stages are formed and tested. The role of innovations in the macroeconomic variables (along with current, lagged and future values) in determining stock prices is also examined. Tests are performed at a bivariate level using multiplicative dummy variables in effect, partitioning the entire sample into different business cycle stages. It was found that, first; stock returns and fundamental determinants do seem to vary over the business cycle as hypothesized. Second, in many cases relationships between stock returns and macroeconomic variables significantly change over different business cycle stages. Most notably, the anomalous negative relationship between stock returns and expected inflation seems to depend on the level and direction of economic activity. The relationship is actually positive when economic activity is low (although insignificant), and negative and significant when economic activity is high. When economic activity is low and rising, the relationship becomes significantly positive.
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Details
- Title
- Macroeconomic determinants of U.S. stock prices
- Creators
- Michael R. DeStefano
- Contributors
- Bang Nam Jeon (Advisor)
- Awarding Institution
- Drexel University
- Degree Awarded
- Doctor of Philosophy (Ph.D.)
- Publisher
- Drexel University; Philadelphia, Pennsylvania
- Number of pages
- ix, 125 pages
- Resource Type
- Dissertation
- Language
- English
- Academic Unit
- Bennett S. LeBow College of Business; Drexel University
- Other Identifier
- 991014970195904721