Stock price volatility, negative autocorrelation and the consumption-wealth ratio : The case of constant fundamentals

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalNot applicablepeer-review

3 Scopus Citations
View graph of relations

Author(s)

Related Research Unit(s)

Detail(s)

Original languageEnglish
Pages (from-to)224-245
Journal / PublicationPacific Economic Review
Volume15
Issue number2
Publication statusPublished - May 2010

Abstract

Based on infinite horizon models, previous theoretical works show that the empirical stock price movement is not justified by the changes in dividends. The present paper provides a simple overlapping generations model with constant fundamentals in which the stock price displays volatility and negative autocorrelation even without changes in dividend. The horizon of the agents matters. In addition, as in recent empirical works, the aggregate consumption-wealth ratio 'predicts' the asset return. Thus, this framework may be useful in understanding different stylized facts in asset pricing. Directions for future research are also discussed. © 2010 The Authors. Journal compilation © 2010 Blackwell Publishing Asia Pty Ltd.