Elephants in Equity Markets / Hélène Rey, Adrien Rousset Planat, Vania Stavrakeva, Jenny Tang.

Format:

Book

Author/Creator:

Rey, Hélène.

Contributor:

Rousset Planat, Adrien.

Stavrakeva, Vania.

Tang, Jenny.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w32756.

NBER working paper series no. w32756

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2024.

Summary:

We introduce a novel empirical market-clearing-based decomposition of equity price growth. Using sample holdings covering only an average of 6% of market capitalization, we account for, on average, 88% of time variation in over 22,000 individual stock prices and 95% of fluctuations in 33 aggregate stock indices. Changes in portfolio weights contribute most to the variance of individual stock prices, while "safe haven" markets feature strong cross-stock substitution patterns that leave aggregate portfolio weight changes uncorrelated with aggregate indices. Equity markets are global and exchange rates play a key equilibrating role. We find that the behavior of active funds' portfolio managers has a causal effect on stock prices by transmitting firm-specific news. Similarly, final funds' investors play a key role in transmitting macroeconomic and risk aversion news to stock prices.

Notes:

July 2024.

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