Forward-looking agents and macroeconomic determinants of the equity price in a small open economy

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Abstract:

This article estimates a macro-determinant model of stock price using monthly data on Canadian and US markets. It is found that the commodity price is also an important component of stock prices. Economic agents in Canadian stock markets are forward looking and their reactions to equilibrium errors are asymmetric. It is also found that deviations from fundamental price are short-lived. Furthermore, among long-run macro-determinants of stock price, at least two long-run stationary relationships exist: uncovered interest parity and a long-run Canadian monetary policy reaction function.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/09603100110091793

Affiliations: Department of Economics, Emory University, Atlanta, GA 30322-2240, USA e-mail: akia@emory.edu

Publication date: January 1, 2003

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