Do macro shocks matter for equities?

Will Dison () and Konstantinos Theodoridis
Additional contact information
Will Dison: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH

No 692, Bank of England working papers from Bank of England

Abstract: We investigate the role of macroeconomic shocks in driving equity price dynamics, focusing in particular on the United Kingdom as a small open economy. Using a vector error correction model estimated on 34 macroeconomic and financial time series, we show that shocks to demand, supply, monetary policy and total factor productivity account for a significant proportion of the variation in both UK and US equity prices. In contrast to some of the earlier literature, we find that shocks to total factor productivity play a particularly important role in explaining equity price movements, particularly at longer horizons. Reflecting the international nature of the FTSE All-Share, we find that most of the variation in UK equity prices is accounted for by foreign shocks, even for relatively UK-focused sectors.

Keywords: Asset prices; stock markets; open economy macroeconomics; small open economies; international financial markets; financial forecasting (search for similar items in EconPapers)
JEL-codes: E44 F41 G15 G17 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2017-11-10
New Economics Papers: this item is included in nep-fmk and nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.bankofengland.co.uk/-/media/boe/files/ ... E6E0699D99E936BCE5F8 Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0692

Access Statistics for this paper

More papers in Bank of England working papers from Bank of England Bank of England, Threadneedle Street, London, EC2R 8AH. Contact information at EDIRC.
Bibliographic data for series maintained by Digital Media Team ().