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MONEY SUPPLY AND STOCK PRICES

Lithman, Ola Knut Eric LU (2012) NEKM02 20111
Department of Economics
Abstract
This thesis deals with money supply and stock prices. Specifically it inquires what macroeconomic factors influences the stock market index. Given the high degree of equity correlation in the market, variables previously used for explaining the cross-section of expected returns are tested against the S&P500 index. The macroeconomic variables used in Chen et.al (1986) are tested for their ability to explain index movements. This is done via standard OLS and probit estimation. The properties of these estimators are then ascertained via simulation. Finally, bias-corrected maximum likelihood estimates are obtained via bootstrapping. These variables generally perform poorly but the ability of money supply to explain index movements depends... (More)
This thesis deals with money supply and stock prices. Specifically it inquires what macroeconomic factors influences the stock market index. Given the high degree of equity correlation in the market, variables previously used for explaining the cross-section of expected returns are tested against the S&P500 index. The macroeconomic variables used in Chen et.al (1986) are tested for their ability to explain index movements. This is done via standard OLS and probit estimation. The properties of these estimators are then ascertained via simulation. Finally, bias-corrected maximum likelihood estimates are obtained via bootstrapping. These variables generally perform poorly but the ability of money supply to explain index movements depends crucially on an underlying systemic analysis. In addition, indications of future specifications are derived from the simulation results.
Certain relations that hold promise for future research in financial economics are also presented, particularly with respect to the extraordinary monetary policy actions undertaken in the wake of 2008. (Less)
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author
Lithman, Ola Knut Eric LU
supervisor
organization
course
NEKM02 20111
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Money supply, Quantitative Easing, Stock Market, Macroeconomic Variables, Simulation, Probit, Bootstrap
language
English
id
2302924
date added to LUP
2012-02-14 13:09:15
date last changed
2012-02-14 13:09:15
@misc{2302924,
  abstract     = {This thesis deals with money supply and stock prices. Specifically it inquires what macroeconomic factors influences the stock market index. Given the high degree of equity correlation in the market, variables previously used for explaining the cross-section of expected returns are tested against the S&P500 index. The macroeconomic variables used in Chen et.al (1986) are tested for their ability to explain index movements. This is done via standard OLS and probit estimation. The properties of these estimators are then ascertained via simulation. Finally, bias-corrected maximum likelihood estimates are obtained via bootstrapping. These variables generally perform poorly but the ability of money supply to explain index movements depends crucially on an underlying systemic analysis. In addition, indications of future specifications are derived from the simulation results. 
Certain relations that hold promise for future research in financial economics are also presented, particularly with respect to the extraordinary monetary policy actions undertaken in the wake of 2008.},
  author       = {Lithman, Ola Knut Eric},
  keyword      = {Money supply,Quantitative Easing,Stock Market,Macroeconomic Variables,Simulation,Probit,Bootstrap},
  language     = {eng},
  note         = {Student Paper},
  title        = {MONEY SUPPLY AND STOCK PRICES},
  year         = {2012},
}