Investment, money, and stock prices: Empirical studies
Abstract
This dissertation is a collection of three essays: the first two test empirically investment theories while the third one investigates the linkages between money supply and stock prices on both an intra-country and inter-country basis. More specifically, the first essay investigates the performance of q theory for different types (equipment and structures) and sectors (services, manufacturing, and agriculture) of investment in four OECD countries. The results indicate that equipment investment is more responsive than structures investment to changes in q , output, and interest rates. Also the relationship between investment and q , output, and interest rates is more pronounced if the contemporaneous correlation across the financial and product markets of those countries is incorporated in the estimation process. Furthermore, sector classification reveals that changes in q explain most of the variation in manufacturing investment. While investment in the services sector is responsive to changes in q and interest rates, investment in the agricultural sector does not appear to be responsive to these determinants. The second essay examines the relationship between corporate investment and cash flow using the q model and a panel of Norwegian firm data. In addition to q , cash flow and sales are found to be significant factors in determining total investment. The estimated coefficients are stable during the sample period with the exception of q, which is significant only in the boom period in the Norwegian economy. These last findings indicate that the large changes in the Norwegian credit markets during the eighties slightly influenced the firms' investment behavior. I also use disaggregated firm-specific investment data in equipment and nonresidential structures. The q variable is not significant in any of the regression equations used to explain changes in the disaggregated capital categories. The final essay investigates the relationship between money supply and stock prices for G-7 countries in the short- and long-run. To investigate a possible long-run relationship, the cointegration methodology is applied. To capture the short-run dynamic effects between money and stock prices Granger causality tests and impulse response function analysis are employed. The cointegration tests indicate that money supply and stock prices do not cointegrate in G-7 economies thus suggesting market efficiency. The direction of causality between money supply and stock prices are not conclusive for all G-7 economies except the U.S. where the causation runs from money supply to stock prices. Furthermore, the impulse response functions show that changes in the U.S. money supply have significant effects on the stock prices of the other G-7 countries. In contrast, changes in money supplies of the other G-7 countries have negligible effects on U.S. stock prices.
Recommended Citation
Gurkan Santos Oguz,
"Investment, money, and stock prices: Empirical studies"
(January 1, 2000).
Boston College Dissertations and Theses.
Paper AAI9981624.
http://escholarship.bc.edu/dissertations/AAI9981624
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