U.S. stock prices and macroeconomic fundamentals

Angela Black, Patricia Fraser, Nicolaas Groenewold

Research output: Contribution to journalArticlepeer-review

14 Citations (Scopus)


This paper considers deviations of U.S. stock prices from their value warranted by expected growth in output. We begin by assuming that the return required by wealth holders is constant, and then relax this assumption by allowing the risk-free rate to vary over time and the risk premium to be time varying. The time-varying risk model produces fundamental prices that are closest to actual prices. The time-series characteristics of deviations from fundamental value suggest that deviations are similar over different time horizons and observational frequency and appear to be driven by nonlinearities in the price–output relationship rather than irrational investor behaviour.

Original languageEnglish
Pages (from-to)345-367
Number of pages23
JournalInternational Review of Economics & Finance
Issue number3
Publication statusPublished - 2003


  • vector autoregression
  • macroeconomic fundamentals
  • intrinsic bubbles
  • irrational behaviour


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