Stock Market Bubbles, Inflation and Investment Risk

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Title: Stock Market Bubbles, Inflation and Investment Risk
Author: Kaliva, Kasimir ; Koskinen, Lasse
Organization: Vakuutusvalvontavirasto
Försäkringsinspektionen
Insurance Supervisory Authority
Series: Insurance Supervisory Authority. Research reports
Series number: 2
Year of publication: 2006
Publication date: 15.2.2006
Pages: 22
Subject (yso): osakkeet; pääomamarkkinat; investoinnit; riskit; hinnat; inflaatio
Keywords: kuplat; mallit
JEL: C51; C52; G11; G12
Other keywords: Dividend-Price Ratio; LMARX Model; Stock Return Distribution; Time-Varying Risk; Time-Varying Expected Returns
Abstract: This paper proposes an autoregressive regime-switching model of stock price dynamics in which the process creates pricing bubbles in one regime while error-correction prevails in the other. In the bubble regime the stock price depends negatively on inflation. In the error-correction regime it depends on the price-dividend -ratio. We find that the probability of regime-switch depends on exogenous inflation and lagged price. The model is consistent with Shleifer and Vishny’s theoretical noise trader and arbitrageur model and Modigliani’s inflation illusion phenomenon. The results emphasize the importance of inflation and the price-dividend -ratio when assessing investment risk.Tutkimuksessa tarkastellaan vakuutuslaitosten vakavaraisuuden kannalta tärkeää ”osakekuplaa” eli yritysten taloudelliseen tilaan perustumatonta liian korkeaa osakkeen hintaa. Kuplaa seuraa usein hinnan romahdus. Esiteltyä menetelmää on sovellettu vakuutusvalvontavirastossa mm. työeläkejärjestelmän sijoitustoiminnan riskianalyysiin.
Rights: https://helda.helsinki.fi/bof/copyright


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