Hostname: page-component-78c5997874-j824f Total loading time: 0 Render date: 2024-11-15T07:09:17.533Z Has data issue: false hasContentIssue false
  • English
  • Français

Rational Expectations and the Impact of Money upon Stock Prices

Published online by Cambridge University Press:  06 April 2009

Eric H. Sorensen
Get access Rights & Permissions [Opens in a new window]

Extract

Received monetary theory supports the existence of a strong relationship between monetary activity and stock prices. Following the work of Friedman and Schwartz [8], relating money supply to aggregate economic activity, some researchers have examined the more specific connection between changes in the rate of growth of money supply and associated movements in stock prices (see [6], [10], [11], [14], [17], [18], [19], [20], [22], and [28]). These studies use a variety of monetary aggregate measures to functionally relate the level of stock market indices to contemporaneous and lagged monetary growth rates. In general, the findings indicate a direct relationship between money supply and stock returns.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 17 , Issue 5 , December 1982 , pp. 649 - 662
Copyright
Copyright © School of Business Administration, University of Washington 1982

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

[1]Almon, Shirley. “The Distributed Lag between Capital Appropriations and Expenditures.” Econometrica, Vol. 33 (01 1965), pp. 178–196.CrossRefGoogle Scholar
[2]Ball, Ray, and Brown, Philip. “An Empirical Evaluation of Accounting Income Numbers.” Journal of Aaaounting Research, Vol. 6 (Autumn 1968), pp. 159–178.Google Scholar
[3]Barro, Robert. “Rational Expectations and the Role of Monetary Policy.” Journal of Monetary Economics, Vol. 2 (01 1976), pp. 1–32.CrossRefGoogle Scholar
[4]Barro, Robert “Unanticipated Money Growth and Unemployment in the United States.” American Economic Review, Vol. 67 (03 1977), pp. 101–115.Google Scholar
[5]Barro, Robert “Unanticipated Money, Output, and the Price Level in the United States.” Journal of Political Economy, Vol. 86 (08 1977), pp. 549–580.CrossRefGoogle Scholar
[6]Cooper, Richard. “Efficient Capital Markets and the Quantity Theory of Money.” Journal of Finance, Vol. 19 (06 1974), pp. 887–908.CrossRefGoogle Scholar
[7]Fama, Eugene F. “The Behavior of Stock Market Prices.” The Journal of Business, Vol. 38 (01 1965), pp. 34–105.CrossRefGoogle Scholar
[8]Friedman, Milton, and Schwartz, Anna. “Money and Business Cycles.” Review of Economics and Statistics, Vol. 45 (02 1963), pp. 52–64.CrossRefGoogle Scholar
[9]Hafer, R. W. “Much Ado about M2.” Federal Reserve Bank of St. Louis, Review, Vol. 63 (10 1981), pp. 7–12.Google Scholar
[10]Hamburger, Michael J., and Kochin, Lewis A.. “Money and Stock Prices: The Channels of Influence.” Journal of Finance, Vol. 27 (05 1972), pp. 231–249.CrossRefGoogle Scholar
[11]Homa, Kenneth E., and Jaffee, Dwight W.. “The Supply of Money and Common Stock Prices.” Journal of Finance, Vol. 26 (12 1970), pp. 1045–1066.CrossRefGoogle Scholar
[12]Joy, O. Maurice; Litzenberger, Robert H.; and McEnally, Richard W.. “The Adjustment of Stock Prices to Announcements of Unanticipated Changes in Quarterly Earnings.” Journal of Accounting Research, Vol. 15 (Autumn 1977), pp. 207–224.CrossRefGoogle Scholar
[13]Judge, George G. et al. The Theory and Practice of Econometrics. N.Y.: John Wiley and Sons, Inc. (1980).Google Scholar
[14]Keran, Michael W. “Expectations, Money and the Stock Market.” Federal Research Bank of St. Louis, Review, Vol. 53 (01 1970), pp. 16–31.Google Scholar
[15]Lucas, Robert E. “Expectations and the Neutrality of Money.” Journal of Economic Theory, Vol. 4 (04 1972), pp. 103–124.CrossRefGoogle Scholar
[16]Lucas, Robert E. “An Equilibrium Model of the Business Cycle.” Journal of Political Economy, Vol. 83 (12 1975), pp. 1113–1144.CrossRefGoogle Scholar
[17]Miller, Merton H. “Money and Stock Prices: The Channels of Influence, Discussion.” Journal of Finance, Vol. 27 (05 1972), pp. 294–298.Google Scholar
[18]Palmer, Michael. “Money Supply, Portfolio Adjustments and Stock Prices.” Financial Analysts Journal, Vol. 26 (07/08 1970), pp. 19–22.CrossRefGoogle Scholar
[19]Pesando, James. “The Supply of Money and Common Stock Prices: Further Observations on the Econometric Evidence.” Journal of Finance, Vol. 29 (06 1974), pp. 909–921.CrossRefGoogle Scholar
[20]Rogalski, Richard, and Vinso, Joseph. “Stock Returns, Money Supply and the Direction of Causality.” Journal of Finance, Vol. 32 (09 1977), pp. 1017–1030.CrossRefGoogle Scholar
[21]Rogalski, Richard “An Analysis of Monetary Aggregates.” Journal of Money, Credit, and Banking, Vol. 10 (05 1978), pp. 253–266.CrossRefGoogle Scholar
[22]Rozeff, Michael. “Money and Stock Prices.” Journal of Financial Economics, Vol. 1 (1974), pp. 245–302.CrossRefGoogle Scholar
[23]Rutner, Jack. “A Time Series Analysis of the Control of Money.” Federal Reserve Bank of Kansas City. Monthly Review, Vol. 57 (01 1975), pp. 3–9.Google Scholar
[24]Sargent, Thomas J., and Sims, C.. “Business Cycle Modeling without Pretending to Have Too Much a Priori Economic Theory.” Federal Reserve Bank of Minneapolis (1977).Google Scholar
[25]Sargent, Thomas J., and Wallace, N.. “Rational Expectations, the Optimal Monetary Instrument and the Optimal Money Supply Rule.” Journal of Political Economy, Vol. 83 (04 1975), pp. 241–254.CrossRefGoogle Scholar
[26]Small, David H. “Unanticipated Money Growth and Unemployment in the United States: Comment.” American Economic Review, Vol. 69 (12 1979), pp. 996–1003.Google Scholar
[27]Sorensen, Eric H., and Smith, James H.. “The Monetary Base and Corporate Earnings.” Business Economics, Vol. 17 (03 1982), pp. 5–11.Google Scholar
[28]Sprinkel, Beryl W.Money and Stock Prices. Homewood, IL: Richard Irwin (1964).Google Scholar
[29]Trivedi, P. K. “A Note on the Application of Almon's Method of Calculating Distributed Lag Coefficients.” Metroeconomiaa, Vol. 22 (09–12 1970), pp. 281–286.CrossRefGoogle Scholar