Failure of Stock Prices to Discipline Managers in a Rational Expectations Economy

1987 ◽  
Vol 25 (2) ◽  
pp. 177 ◽  
Author(s):  
Amin H. Amershi ◽  
Shyam Sunder
Keyword(s):  
Stock Prices ◽  
Rational Expectations

scholarly journals Crises boursières, bulles spéculatives et raitionalité économique

2005 ◽  
Vol 20 (4) ◽  
pp. 781-790
Author(s):  
Marie-Christine Adam ◽  
Ariane Szafarz
Keyword(s):  
Stock Market ◽  
Stock Prices ◽  
Stock Markets ◽  
Critical Analysis ◽  
Rational Expectations ◽  
Financial Analysts ◽  
Stock Market Crash ◽  
Speculative Bubble ◽  
The World

In October 1987 the stock markets across the world witnessed an unprecedent crash of which both economists and financial analysts are still trying to under-stand the origin. One of the most controversial interpretations of this event is the speculative bubble hypothesis according to which long overvalued stock prices readjusted to realistic values in october 87. This interpretation is particularly interesting given that new "bubble" theories have been developed within the framework of rational expectations models during the last ten years. This paper presents a critical analysis of these theories and evaluates their potential for our understanding of the stock market crash.

scholarly journals On Testing for Speculative Bubbles

1990 ◽  
Vol 4 (2) ◽  
pp. 85-101 ◽  
Author(s):  
Robert P Flood ◽  
Robert J Hodrick
Keyword(s):  
Stock Prices ◽  
Rational Expectations ◽  
Empirical Studies ◽  
Empirical Work ◽  
Free Markets ◽  
Equity Prices ◽  
Speculative Bubbles ◽  
Market Participants ◽  
Current State ◽  
Rational Bubble

The possibility that movements in prices could be due to the self-fulfilling prophecies of market participants has long intrigued observers of free markets. This paper surveys the current state of the empirically-oriented literature concerning rational dynamic indeterminacies, by which we mean a situation of self-fulfilling prophecy within a rational expectations model. Empirical work in this area concentrates primarily on indeterminacies in price levels, exchange rates, and equity prices. We first examine a particular type of explosive indeterminacy, usually called a rational bubble, in an example of the market for equities. Then, we consider empirical work relating to price-level and exchange-rate indeterminacies and empirical studies of indeterminacies in stock prices. Finally, we take up some interpretive issues.

scholarly journals The Political Economy of Arms Export Restrictions: The Case of Japan

2012 ◽  
Vol 13 (3) ◽  
pp. 419-439 ◽  
Author(s):  
ATSUSHI TAGO ◽  
GERALD SCHNEIDER
Keyword(s):  
Political Economy ◽  
Stock Prices ◽  
Rational Expectations ◽  
Event Studies ◽  
The Political ◽  
Political Events ◽  
Export Restrictions ◽  
Arms Exports ◽  
Arms Export

AbstractThe export of arms belongs to the most contested issues in democracies. In this article, we examine the economic repercussions of the recent easing of the Japanese arms exports restrictions. We develop a rational expectations argument to understand why some political events increase the income of the arms manufacturers, while other ones reduce it or have no effect at all. Event studies suggest that investors closely observe relevant political developments since stock prices of the six arms manufacturers companies reacted consistently to the announcements and leaks as to whether the arms export restrictions would be lifted or not.

scholarly journals Stock Price Booms and Expected Capital Gains

2017 ◽  
Vol 107 (8) ◽  
pp. 2352-2408 ◽  
Author(s):  
Klaus Adam ◽  
Albert Marcet ◽  
Johannes Beutel
Keyword(s):  
Asset Pricing ◽  
Stock Prices ◽  
Stock Price ◽  
Rational Expectations ◽  
Capital Gains ◽  
Strong Positive Correlation ◽  
Pricing Model ◽  
Rational Agents ◽  
Asset Pricing Model ◽  
Internal Rationality

Investors' subjective capital gains expectations are a key element explaining stock price fluctuations. Survey measures of these expectations display excessive optimism (pessimism) at market peaks (troughs). We formally reject the hypothesis that this is compatible with rational expectations. We then incorporate subjective price beliefs with such properties into a standard asset-pricing model with rational agents (internal rationality). The model gives rise to boom-bust cycles that temporarily delink stock prices from fundamentals and quantitatively replicates many asset-pricing moments. In particular, it matches the observed strong positive correlation between the price dividend ratio and survey return expectations, which cannot be matched by rational expectations. (JEL D83, D84, G12, G14)

Stability of technology stock prices: evidence of rational expectations or irrational sentiment?

2004 ◽  
Vol 30 (12) ◽  
pp. 33-54
Author(s):  
Kathryn Wilkens ◽  
Nordia D. Thomas ◽  
M.S. Fofana
Keyword(s):  
Stock Prices ◽  
Rational Expectations

Can Noise Traders Cause Persistent Deviations from Fundamental Values on the Stock Market? / Können Noise Trader langfristige Abweichungen der Aktienkurse von ihren Fundamentalwerten bewirken?

1999 ◽  
Vol 219 (5-6) ◽  
Author(s):  
Mathias Binswanger
Keyword(s):  
Stock Market ◽  
Future Development ◽  
Stock Prices ◽  
Rational Expectations ◽  
Price Volatility ◽  
High Price ◽  
Noise Traders ◽  
Noise Trader ◽  
Fundamental Value ◽  
Fundamental Values

SummaryModels which are built on the assumption of rational expectations can easily outline the conditions under which bubbles may exist but they remain silent on the factors that cause the price to deviate from the fundamental value. In this paper it is argued that dynamic extensions of the noise trader model of De Long et al. (1990a) may provide a behavioral explanation of persistent deviations of stock prices from their fundamental value if changing fundamentals and especially fundamental shocks are included. As a consequence the pattern and the sustainability of bubbles also depend on noise traders’ reaction to fundamental shocks. In the multi period extension of the noise trader model developed in the paper noise traders’ behavior is captured by two components. First, there is a fundamentally unwarranted optimism about the future development of dividends independent of the recent development of fundamentals. Second, noise traders overreact to an average of recent dividend shocks, which results in waves of optimism or pessimism that create high price volatility. The model shows that sustainable bubbles are slowly growing, while large overreactions to fundamental shocks will result in fast growing but frequently bursting bubbles.

The Effect of Current Ratio and Debt to Asset Ratio on Net Profit Margin and Stock Prices: A Study of Basic Industry and Chemicals Companies

2020 ◽  
pp. 282-294
Author(s):  
Sudirman S ◽  
Muhammad Wahyuddin Abdullah ◽  
Muhammad Obie
Keyword(s):  
Stock Prices ◽  
Stock Exchange ◽  
Secondary Data ◽  
Profit Margin ◽  
Current Ratio ◽  
Industry Sector ◽  
Basic Industry ◽  
Net Profit ◽  
Equity Ratio ◽  
Index Value

This study examined the effect of current ratio and debt to asset ratio on net profit margin and stock prices of the sector basic industry and chemicals companies listed on the Indonesia Stock Exchange in the period 2015-2019. The object of research was the stock prices of companies in the Basic Industry and Chemicals sector, which have been published through the official website of the Indonesian capital market. It was used secondary data derived from the monthly statistics, including Current Ratio data, Net Profit Margin, Debt to Asset Ratio, and data on closing prices for the period 2015-2019. In analyzing data, it was used path analysis of secondary data obtained from the basic industry sector financial statements of 60 companies. The company's performance in this sector is considered quite good when seen from the movement of the index value in the last five years. The results show that direct current ratio had a positive and significant effect on the net profit margin, and the debt to equity ratio did not significantly influence the net profit margin. The current ratio has a positive and significant effect on stock prices, and the debt to equity ratio has a negative and not significant effect on stock prices. In contrast, the net profit margin has a significant effect on stock prices in the basic industry sector companies on the Indonesia Stock Exchange. Indirectly the current ratio has a positive and significant effect on stock prices. In contrast, the debt to asset ratio has a negative and not significant effect on the company's stock prices in the basic industry sector on the Indonesia Stock Exchange.

An Empirical Investigation of Factors Affecting Stock Prices in Vietnam

2014 ◽  
pp. 74-89 ◽  
Author(s):  
Vinh Vo Xuan
Keyword(s):  
Exchange Rates ◽  
Crude Oil ◽  
Foreign Exchange ◽  
Stock Prices ◽  
Global Financial Crisis ◽  
Oil Prices ◽  
Foreign Exchange Rates ◽  
Factors Affecting ◽  
Crude Oil Prices ◽  
Before And After

This paper investigates factors affecting Vietnam’s stock prices including US stock prices, foreign exchange rates, gold prices and crude oil prices. Using the daily data from 2005 to 2012, the results indicate that Vietnam’s stock prices are influenced by crude oil prices. In addition, Vietnam’s stock prices are also affected significantly by US stock prices, and foreign exchange rates over the period before the 2008 Global Financial Crisis. There is evidence that Vietnam’s stock prices are highly correlated with US stock prices, foreign exchange rates and gold prices for the same period. Furthermore, Vietnam’s stock prices were cointegrated with US stock prices both before and after the crisis, and with foreign exchange rates, gold prices and crude oil prices only during and after the crisis.

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