Liquidity Shocks and Asset Prices
Abstract:
In models of liquidity, stock market booms tend to follow adverse liquidity shocks. This result is clearly at odds with the data. We demonstrate that allowing for endogenous productivity corrects this puzzling price dynamics. Negative growth prospects decrease equity prices because of a long-run predictable component in dividend growth.
| Report No.: | HIAS-E-17 |
|---|---|
| Author(s): | Pablo A. Guerron-Quintana(a) Ryo Jinnai(b) |
| Affiliation: | (a) Federal Reserve Bank of Philadelphia (b) Hitotsubashi University |
| Issued Date: | December 2015 |
| Keywords: | |
| JEL: | |
| Links: | PDF, HERMES-IR , RePEc |
