| Finance and Economics Discussion Series: Stock Market Fluctuations and the Term Structure Contributor(s): Zhou, Chunsheng (Author), United States Federal Reserve Board (Created by) |
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ISBN: 1288722982 ISBN-13: 9781288722983 Publisher: Bibliogov OUR PRICE: $14.18 Product Type: Paperback - Other Formats Published: February 2013 |
| Additional Information |
| BISAC Categories: - Political Science |
| Physical Information: 0.07" H x 7.44" W x 9.69" (0.18 lbs) 34 pages |
| Descriptions, Reviews, Etc. |
| Publisher Description: This paper uses the term structure of interest rates to explain the variations of stock prices and stock returns. It shows that interest rates have an important impact on stock returns, especially at long horizons. The hypothesis that expected stock returns move one-for-one with ex ante interest rates, which has been rejected strongly in other studies using short horizon data, is supported by long horizon data. The paper proposes, for the first time, a single measure---the present value of forward interest rates---to summarize the information of the term structure that is useful in characterizing the comovements of the equity market and the bond market, and finds that such a single measure explains a significant part of variation in dividend-price ratios. The paper also suggests that the high volatility of the stock market is related to the high volatility of long-term bond yields and may be accounted for by changing forecasts of discount rates. The findings of this paper are quite different from the typical findings of the previous work and may provide a reasonable economic explanation for the predictability of long-horizon stock returns. |
