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Please use this identifier to cite or link to this item: http://hdl.handle.net/2108/81

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contributor.authorBagella, Michele-
contributor.authorBecchetti, Leonardo-
contributor.authorCiciretti, Rocco-
description.abstractThe paper investigates the stability of stock markets by exploring how specific and aggregate shocks generate reassessment of investors and analysts expectations on earnings forecasts and on the fundamental value of equities. In this paper we evaluate the effects of this combined reaction on the implied equity risk premium extracted from a standard two-stage dividend discount (DD) model. Our findings show: i) substantial overreaction of investors to both downward and upward firm specific forecast revisions, plus overreaction to changes in GDP and to the announcements of the Consumer and Business Confidence indicator before the burst of the March 2000 stock market bubble; ii) a fall in the positive overreaction to upward earning forecast revisions and GDP changes after the stock bubble burst and a loss of significance of overreaction to upward forecast revisions and to announcements of the Consumer Confidence Index after the 9/11 terrorist attack. These findings appear broadly consistent with the hypothesis of reduced participation of uninformed (noise) traders to financial markets. We also observe that the interplay of monetary policy stance, analysts’ forecasts and investors confidence expressed by equity risk premia around extreme shocks is such that it reduces financial market instability potentially generated by them.en
format.extent229722 bytes-
relation.ispartofseriesQuaderni CEISen
subjectimplied risk premiumen
subjectanalysts forecast erroren
subjectSeptember 11en
titleThe stability of financial markets under ordinary and extreme news: insights from the dynamics of the implied equity risk premium.en
typeWorking Paperen
subject.jelG14; Information and market efficiency, event studiesen
subject.jelG15; International financial marketsen
subject.jelE32; Business fluctuations, cyclesen
subject.jelE37; Forecasting and simulationen
Appears in Collections:Quaderni
Research in Economics and Institutions

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