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What are the Drivers of Stock Prices - Time Series Evidence from the US

Journal of Commerce and Accounting Research

Volume 12 Issue 3

Published: 2023
Author(s) Name: T. J. Gabriel, Mitra Devkota | Author(s) Affiliation: Mike Cottrell College of Business, University of North Georgia, Dahlonega, USA.
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Abstract

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The objective of this article is to analyse the drivers of stock prices in the US. Monthly time series data from May 1999 to August 2020 are used. The empirical results show that there exists a long-run cointegrating relationship between the variables under consideration. In the long run, the exchange rate, Index of Industrial Production (IIP), money supply and the Treasury bill rate (TBR) are positively related to stock prices, while the consumer price index (CPI) is negatively related to stock prices. The vector error correction model results suggest that there is a unidirectional Granger causality running from the CPI to stock prices. In addition, there are four feedback relationships that run between the exchange rate and stock prices; the money supply and stock prices; the IIP and stock prices; and the TBR and stock prices. These findings may have important implications for decision-making by national policymakers.

Keywords: Time Series, Dow Jones Index, Stock Prices, Granger Causality, Vector Error Correction Model

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