Technical Report Liquidity Shocks and Asset Prices

GUERRON-QUINTANA, Pablo A.  ,  JINNAI, Ryo

2015-12-01 , Hitotsubashi Institute for Advanced Study, Hitotsubashi University
Description
In models of liquidity, stock market booms tend to follow adverse liquidity shocks. This result is clearly at odds with the data. We demonstrate that allowing for endogenous productivity corrects this puzzling price dynamics. Negative growth prospects decrease equity prices because of a long-run predictable component in dividend growth.
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http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/27617/1/070_hiasDP-E-17.pdf

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