Stock returns,velocity dynamics and inflation volatility

ABSTRACT

Our model relates the variability of stock returns to the variability of consumption velocity and shows that real stock returns tend to co-vary negatively with expected inflation in a period (or regime) of low and stable inflation and to co-vary positively with expected inflation in a period (or regime) of high and volatile inflation. Long-run real stock returns are shown to be positively related to expected inflation. Our empirical results for 20 countries provide consistent support for our propositions, indicating that the standard deviation of the annual inflation rate roughly equal to 10% is the dividing line between negative and positive return-inflation relations.     

Information and adjustment in a local housing market

Existing studies on bubbles have been mainly concerned with investigating the stationarity properties of stock prices and market fundamentals. We develop a new method of testing for bubbles that relates the bubble component of stock prices to the probability of bursting in the context of the Weibull distribution. There were several eruptions and subsequent collapses of seeming bubbles over the past three decades: 1987 (Black Monday), 2000 (information technology (IT) boom) and 2007 (housing market boom). Using US monthly data for the S&P 500 and NASDAQ series, we have found that the S&P 500 series contained an explosive bubble only during the boom of the housing market that occurred before the 2007 global economic crisis, and the NASDAQ market contained an explosive bubble during the surge of stock prices peaking in 1987 and 2007, although our stationarity tests fail to detect the bubbles. No bubble was found in both the S&P and NASDAQ series during the 2000 IT boom. Our evidence corroborates the criticism that the traditional unit root and cointegration tests may not be able to detect some important class of bubbles.     

Information Technology, Organizational Transformation and Productivity Growth: An Examination of the Brynjolfsson–Hitt Proposition

This study investigates what happened to productivity growth during the Information Technology (IT) revolution in an IT-driven economy, Korea. To this end, we have decomposed the source of productivity growth into technological change, technical efficiency and scale economies using a stochastic frontier function and examined how the composition of productivity growth has changed with different phases of IT developments. We have used panel data that is comprised of 4022 firms from 1996 to 2000. We have found that Korean firms have been quick to embrace organizational restructuring to adapt to a new business environment brought about by IT, which seems to be the major source of the success of Korean firms. We have also found that: (i) there is no substantial difference in productivity gains between IT-producing firms and IT-using firms; (ii) productivity growth is more robust to business cycles in an IT-driven economy than in the traditional economy; and (iii) efficiency improvement attributed to organizational transformation plays a greater role in productivity growth as IT applications become more widespread.     

Financial Integration and Market Efficiency: Some International Evidence from Cointegration Tests

This study investigates whether the globalization of financial markets enhances the efficiency of national stock markets. To this end, we have developed a dynamic representation of cointegration which is consistent with hypothesis that stock prices reflect the efficient discounting of new information on market fundamentals and testes for market efficiency in five industrialized markets (the United States, Canada, Japan, the United Kingdom, and Germany) over the last two decades. Our empirical analysis indicates that the U.S. and Canadian stock markets obey the long-run equilibrium path implied by our dynamic cointegration model, but the Japanese, British, and German markets do not exhibit such characteristics. Thus, it can be claimed that the stock markets of the United States and Canada are informationally efficient, whereas those of Japan, the United Kingdom, and Germany are not. [G15, G14]