Research Discussion Papers, Bank of Finland
Factors affecting asset price expectations: fundamentals and policy variables
Abstract: This paper examines what factors move US and European
stock and bond markets, extending earlier work by Campbell and Ammer
(1993). Inflation news is incorporated into the stock and bond
decomposition and explicit attention is given to different horizons over
which expectations are formed. Sensitivities to monetary policy instruments
and fundamental factors are examined. The data are monthly. For the euro
area, a unique data set is constructed. The results illuminate a number of
widely-held preconceptions and confirm that inflation news volatility is a
non-trivial factor in the stock and bond return decompositions.
Keywords: stock prices; bond prices; return decompositions; fundamental factors; (follow links to similar papers)
JEL-Codes: E44; G12; (follow links to similar papers)
47 pages, August 8, 2001
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