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What Ties Return Volatilities to Price Valuations and Fundamentals? / Alexander David, Pietro Veronesi.
- Format:
- Book
- Author/Creator:
- David, Alexander.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w15563.
- NBER working paper series no. w15563
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2009.
- Summary:
- Stock and Treasury bond comovement, volatilities, and their relations to their price valuations and fundamentals change stochastically over time, both in magnitude and direction. These stochastic changes are explained by a general equilibrium model in which agents learn about composite economic and inflation regimes. We estimate our model using both fundamentals and asset prices, and find that inflation news signal either positive or negative future real economic growth depending on the times, thereby affecting the direction of stock/bond comovement. The learning dynamics generate strong non-linearities between volatilities and price valuations. We find empirical support for numerous predictions of the model.
- Notes:
- Print version record
- December 2009.
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