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The Relationship Between Money Supply And Stock Prices Finance Essay - Free Essay Example

Sample details Pages: 6 Words: 1755 Downloads: 6 Date added: 2017/06/26 Category Finance Essay Type Analytical essay Did you like this example? In this paper Rudolph studied on short-term relationship between money supply and stock prices that shows the correlations between changes in the money supply and changes in the stock prices, which was the subject of this body, that first became deceptive for Rudolph in 1967. It was in short-term nature, It believed these correlations signify a new finding in the ongoing investigation into the relationship between money and level of stock prices. For this Rudolph take the data of money supply (M) was used in the charts that comprises of time and demand deposits of all commercial banks in the country + currency in the hands) which becomes seasonally adjusted M2.and stock price data was gathered from slandered and Poor (SP). Don’t waste time! Our writers will create an original "The Relationship Between Money Supply And Stock Prices Finance Essay" essay for you Create order Both money supply and stock prices were gathered weekly basis. It follows from his findings that long-term rates of change tend to show stock prices synchronized with or even projecting money supply changes, however, indeed, money supplu leads stock prices. According to Rudolph Changes in the rate of change of Money supply M were followed about seven weeks later by equivalent changes in stock prices SP. This knowledge is was helpful for to the longer-term investor as well as helpful for the trader, for to properly delay a purchase for a few weeks, for in-stance, can often mean a substantial difference in the return on the investment. The investment results described above are based on a single time period (67 to 71), and disregard trading costs (which would be substantial, given the indicated number of purchases and sales). In conclusion Rudolph were found the correlation between money-supply changes and stock-price changes evident in his charts. On the other hand, he believed that t hese charts, which were presented in his reports that were merely a incomplete selection, deliver powerful new support for the relationship between money supply and stock prices a relationship no serious investor can afford to ignore. (Hamburger and Levis, 1972) The purpose of this paper was to addition to the understanding of relationship between money supply and stock prices and also the channel of influence of money supply on stock prices. In precise the analysis was interconnected to a number of limitations contained in earlier studies. For this few activities had been made by researcher (i) to estimate the effects of risk on the common level of stock prices (ii) to determine the effect, if any, that distinctions in the growth rate of money have on these dynamics the hypothesis was that money has no direct influence on the stock market and for this data was used quarterly . The first of these effects the most acquainted was the liquidity effect of changes in the amount of money upon interest rates. The money stock is itself an asset in the portfolio of capital owners. Increases in the money supply will cause decreases in the profits to holders from the last dollar of money held. Changes in the money supply we re, therefore, a alternative for changes in the stock return of capital owners. The second main channel by which money touches stock prices was by changing the actual demand for goods and services. Third important component by which money effects the stock prices was risk premium .An asset has a risk premium to the extent that it contributes to the variation in the value of the holders total portfolio. In conclusion it was doubtful that the indication will provide final answers to the questions of how money affects the stock market or how the possessions of money should be measured. There are the widely known influences rolling through long-term bond rates and corporate earnings. (Michael Palmer 1970) This study discovered the relationship of engagements in the nations money supply to variations in common stock prices. this theory credits changes in the stock of money as the main causal factor creating fast changes in total monetary demand and ultimate changes in total output and/or price levels. The model emphases on major changes in the money supply and common stocks prices 10years data was gathered for this research on weekly basis. This investigation was recommending that changes in the growth rates of the private sectors stock of money may changes that sectors wishes to substitute money stabilities for other financial assets. from this relationship, two main situations can be explored: (i ) An increase in the growth rate of the money stock may create extra liquidity. This imbalance will motivate the private sector to substitute extra money balances for less liquid financial assets like as corporate stocks. This change can lead to increased buying pressur es on these less liquid financial assets. (2) A decrease in the growth rate of the money stock may create a shortfall liquidity situation. This imbalance may motivate a shift from less liquid financial assets into money. This conclusion of the private sectors effort to achieve liquidity balance can generate selling pressures on these less liquid financial assets which may produce overall price decrease. Conclusion liquidity disequilibrium may ultimately changes less liquid financial assets through a sifting process with investors initially changing new money balances into financial assets similar (in terms of liquidity) to those released. the closer the degree of liquidity of the initial asset purchased by the Federal Reserve to corporate stocks, the lesser the time period between a change in the growth rate of the money supply and changes in stock prices. (ROGALSKI VINSO 1977) It state the purpose of this paper was to re-examine the relationship between money supply and stock prices to determine whether dependence can be recognized and in which direction the causality is demonstrated. It was generally prescribed that an unpredicted increase or decrease in the growth rate of money results in a change in the balance position of money with respect to additional assets in the portfolio of investors. As a outcome, investors try to change the proportion of their asset portfolios characterized by money balances. While investors can correct, the system cannot since all money balances must be held. As a outcome, stability was recreated by changes in the price levels of the various asset types. Value of financial assets is an important element in asset portfolio of investor, including common stocks. It can be anticipated that changes in portfolios caused by changes in the monetary element will arise in this account as well as those accounts si gnifying real goods and services. Since it also can be anticipated that the time response of investors may be delayed, ResearcherÃÆ' ¢Ãƒ ¢Ã¢â€š ¬Ã… ¡Ãƒâ€šÃ‚ ¬ÃƒÆ' ¢Ãƒ ¢Ã¢â€š ¬Ã… ¾Ãƒâ€šÃ‚ ¢s hypothesis was changes in the money supply cause changes in stock prices. If the hypothesis is true, then changes in stock prices should respond to monetary disturbances with a lag. . The conclusion was changes in money supply causes the stock return but stock return can not predict future money supply (PEARCE ROLEY, 1983) This paper investigates whether the response of common stock prices to weekly money announcements is consistent with the efflcient markets hypothesis. In this research the focus was on the very short-run response of stock prices to both anticipated and unanticipated announced changes in money. For this the weekly data were used in this paper start from 29 September 1977, and end on 29 January 1982. the hypothesis was for this research was that anticipated money affects stock prices The implication of this work was that investors could earn above normal profits by using a exchange strategy based on the observed behavior of the money stock. This contradicts the efficient markets hypothesis which asserts that current asset prices reflect all available information so that no such trading strategy can exist. This paper was studied the short-run response of stock prices to weekly money supply publications. Several results emerge from this experimental investigation. ( i) stock prices react only to the unanticipated variation in the money supply as predicted by the efficient markets hypothesis. (II), an unanticipated increase in the announced money supply reduces stock prices while an unanticipated decrease raises stock prices. (III), the stock price reaction did not depend on the relationship of the money supply to the long-run series of the Federal Reserve, there was limited proof that the stock price react changed as a result of the Federal Reserves change to a reserve-aggregate approach to monetary control. (BENNETT and SIAS, 2001) . In this analysis it illustrate that money flows was highly correlated with stock returns of same period. It also establish strong proof of money flow motion, in that a times series data with lagged can be helpful to predict future flow of moneys. Most important thing in this was finding was that flow of money appeared to predict cross-sectional deviation in future returns. money flow was defined as the change between upward and downward position of dollar trading volume, and was used as a technical indicator since the timely 1970s. The sample was taken from NYSE- listed companies for 1-year and calculated daily money flows and excluded the companies which was traded less than 25 times in a day.in conclusion money flow as an fascinating technical indicator that show the Positive change indicate surplus demand, while negative changes indicate surplus supply. If persistence happens in surplus demand and supply, then money flow can be able to forecast future re turn and also it concluded strong positive correlation between flow of money and return measured for the concurrent period. (HOMA and. JAFFEE, 1971) The objective of this paper was to develop and evaluate a relationship between the money supply and common stock prices, and then estimate the effectiveness of this relationship as a predicting tool in the use of investment strategies. The importance of the money supply as a element of stock prices and resulting of both from the structural relation of the stock market with monetary environments and from the part that the supply of money plays as a common indicator of economic anticipation. Return was calculated from dividend growth model and price of any share was described in three variables growth rate of dividend, risk free interest rate and risk premium. And study the relationship between the money supply and the stock market was calculated by using regression analysis technique. The conclusion of this paper was divided into two parts first part shows the evidence that shows a significant and systematic relationship between money supply and stock return. In second part it shows the estimation of these results called the market test from which information generated by the stock market relationship that was helpful for an investor. The estimation clearly depends on the investors ability to forecast the money supply.

CB Analysis Free Essays

string(115) " buying the phone 6 was that it might not be all that it added up to be, and therefore not worth what paid for it\." There was definitely a gap between these two States, ultimately creating a need for food (Sabina, 246). B) What product and brand did you choose? In this class thus far we have definitely learned that products can always be copied or replaced, but brands are often unique and timeless. May have chosen a simple Subway sandwich without even getting the entire value meal, but I chose to go with a brand that is known to always have fresh vegetable options, with quick service. We will write a custom essay sample on CB Analysis or any similar topic only for you Order Now C) What type of value did this purchase provide? At the time, purchasing this Subway sandwich proved very valuable to me. I was in a rush to head to class and needed to fuel my body with something hat could give me some substance to work through the rest of the day. Though just a sandwich, it was very necessary that I eat to continue my long day of studying and meetings. D) What was the type of risk involved with this purchase? The biggest risk involved in me purchasing this Subway sandwich was that it might not have the freshest toppings, and that the customer service might be slow. I knew when I was going to purchase my sandwich that the risk of me losing money or regretting my decision to buy the sandwich would be relatively low. Ultimately, I view this purchase as a low-risk purchase. E) What evaluative criteria were used? We learned from our book that evaluative criteria are attributes consumers consider when reviewing alternative solutions to an issue or problem (Fabian, 355). In this situation, my problem was that I was starving and in a time crunch in between classes. When I was choosing Subway as my meal of choice, I knew that potential benefits would be that it would be a healthy meal in a quick time frame. Considered going to Jimmy Johns, but it was quite a bit of distance from my apartment and I didn’t have time for that. The criteria used were proximity to my apartment, price, and quality. ) Did you conduct an internal or external information search? Why or why not? I used internal information search, involving me retrieving knowledge about products or services from my memory (Fabian, 248). Because this purchase involved such limited decision-making, felt confident in my ability to use my past experiences at Subway to decide that I should go back there for the same, quick service. Was confronted with a need to satisfy my hunger, and I knew I could rely on myself given the time constraints. ) If you conducted an internal information search, explain your evoked set (consideration set), your inert set and your inept set. My consideration set consisted of Jimmy John’s, a close sandwich alternative with great customer service. Subway marketers might want to consider why it is G’s always has the best customer service, but in this case Subway won me over because of their proximity to my apartm ent. To be honest, did not have an inert set, or any alternatives to which was indifferent to (Fabian 249); Subway was the perfect place! One option I considered to be apart of my inept set was the Korean restaurant next to the Subway. It was unacceptable for me to even consider due to me not wanting o try out a new restaurant that appeared to take a long time to get waited on. H) What was the cost of this information search? Please explain your answer in detail, don’t just give an estimated dollar figure. The monetary cost of this information search was free. Having said that, I do consider the cost to this information search to have been the time spent making the decision about where and what should eat. As was going through what little alternatives there were to Subway, I may have been wasting time I could have been using to study and prepare for class. Luckily, there was not too much mime wasted deciding how to satisfy my hunger, but there definitely was at least some low cost associated with my internal information search. This information search did turn into me buying the sandwich, so it did influence that small purchase. B. Extended Decision Making Purchase-Apple phone 6 10/1/14 a) What was the need (actual state vs.. Desired state)? To be honest, really did not have a true need for a new phone, so my actual state was that I had an older phone that was working completely fine, but I did not have the new phone 6. My desired state was to own the newest Phone, because I always love using the latest Apple products. As our book pointed out, states Often change (Fabian, 247). Someone may have, at one time, been satisfied with a cell phone they had, until one day a newer, cooler version comes along and is the new desire. B) What product and brand did you choose? Chose to purchase a cell phone, but most of my money goes for paying for the Apple brand. Paying for the Apple brand is not only paying the company for their uniqueness, but it is paying for me to have brand satisfaction with my mobile device. Products that buy often become instantly meaningful, but t is the Apple brand that lasts longer and becomes more and more meaningful over time. C) What type of value did this purchase provide? This purchase of an phone provided me with a value that truly satisfied my need to have the latest technology and the most efficient APS. Like I mentioned before, I really am an avid Apple user, and I enjoy being able to quickly pull up any information for classes or companies that I am recruiting for. Additionally, I really believe that the monetary value will hold for the most part over the next year-?if kept in good condition. ) What was the type of sis involved with this purchase? The biggest risk in buying the phone 6 was that it might not be all that it added up to be, and therefore not worth what paid for it. You read "CB Analysis" in category "Papers" I would like to consider that I minimized my risk when I chose to do research on the Internet and saw whatever pros and cons there were o n the new phone. Having said all this, my risk definitely increases the more money and time put into a good (unlike a sandwich). E) What evaluative criteria were used? The attributes I considered when comparing the phone 6 to the Samsung Galaxy phone, were size, price, speed, sound, quality, and appearance. It would take quite some phone to pull my brand loyalty away from Apple products, but think it is always necessary to keep my options open when brainstorming solutions to my problems or needs (Fabian, 256). F) Did you an external information search because I wanted to ask an expert, or in this case, research the Internet’s various sources (Fabian, 249). Chose the Internet as my number one source because of how easy it is to obtain information and it takes me less time to comprehend a report when it is in a compiled list like I found online. G) If you conducted an external information search, explain how oh did this using terminology. When I conducted an external information search, I really already knew what my evaluative criteria were. Typed in the search engine a question such as â€Å"How big or attractive is the phone 6. † I was immediately presented with the newest reviews on the phone, and faced information overload after awhile. Began not being able to assimilate all of the information. It made me think that I may want to be more specific with my future searches (Fabian, 249). H) What was the cost of this information search? Please explain your answer in detail, don’t just give an estimated liar figure. The cost of this information search was the time I spent researching on the Internet. Fortunately, I did not have to spend too long evaluating the phone, but like I said before did get a little overwhelmed. Though the search was free, I probably sacrificed time I could have been getting some reading or homework done for all of my classes. This information search did eventually turn into me purchasing the new phone, so it did indeed lead me into paying something. 2. Psychological Variables Charley Burger and Fry 9/25/13 One of the best deals on campus is on Thursdays at Charley. Their burger ND fry basket is not only huge in size, but it is only $4. 99. This Thursday was one of the best nights because I had turned in a big proposal for class due right before I went to dinner. Because I was in such a great mood, my self esteem for the night was at an all time high, encouraging me to treat myself to dinner (Fabian, 117). Struck There have been many days thus far where have had to rely on caffeine to allow me to get my homework and studying done. There are many variables that have encouraged me to purchase coffee, including my own awareness and have the proximity and convenience of Struck. Getting coffee often served as a motivation for me to study even more. There were nights my anxiety was actually calmed down knowing I could rely on Struck being right in the Winter Garden to help me get through all of the homework. Really love the high relationship quality and loyalty I have with Struck (Fabian, 25). 3. Social Influence Cottage Inn Pizza 9/13/14 This Saturday was a football Saturday where we were tired and so upset about the Michigan loss to Notre Dame that we decided to order pizza. TO be honest, I wasn’t even hungry, but I decided to follow the group and pitch in to order the pizza. When in a social environment, I really don’t need much persuasion for many small purchases, as it often easier to go with crowd (Fabian, 149) Bush’s Grocery Store 9/5/14 This was the Saturday of syllabus week, meaning it was our last chance to enjoy life before glasswork picked up. My friend Garage not only suggested that we go to her sister’s apartment complex, but that we go buy groceries to throw a big cookout. Decided to conform to what she wanted and help purchase groceries at a place had never been (Sabina, 140). 4. Purchase Influence Bolos Mediterranean Chicken Schwartz 9/1 0/14 When was in the Sessile Cafe, I was just buying a soft drink when a friend of mine came up and said I should try the Chicken Schwartz because it is Mediterranean Wednesday. The biggest influence in this purchase situation was my friend’s word of mouth information. This information was sudden, but had he not informed me Of this deal I would have never made the purchase (Sabina, 161). Orange Leaf Frozen Yogurt 9/7/14 My friend Jacob works for a Flock Tag company who was running a special where if you signed up for a Flock Tag Card, you would get free frozen yogurt from Orange Leaf. The promotion, or purchase influence in this case, was what ultimately lured me into becoming an Orange Leaf addict and this trip being one of many trips (Fabian, 320). 5. Buying Patterns When looking at my complete journal, I definitely have recognized a couple of buying patterns. The first, and most obvious was the purchase of Struck coffee more and more as the weeks went on. This is partly because of the fact that the seasons have changed and it has been cooler. I also attribute it to the subliminal persuasion using their aroma as pass by the Struck in Ross (Fabian, 53). The second buying pattern that I have recognized is the purchasing late at night on Thursdays and Friday. Those two days are by far the most expensive days of the week for me (Fabian, 328). 6. Post-Recession Consumer The biggest part of the article that pertained to my consumer behavior habits was when it talked about the consumers being more saws and aware of marketing techniques (Gerbera, 3). I feel as if I have grown increasingly aware of how businesses can manipulate naive buyers into spending marked up goods. Looking back at my purchases, I really feel that was never misled into purchasing something shouldn’t have. The article said â€Å"Generosity binds a company to its community and its stakeholders (Gerbera, 4). † Couldn’t agree more with that quote. When a Struck employee or a worker at a grocery Store goes the extra mile to put a smile on my face or assist me, I feel more and more consumer loyalty and allegiance to the business. 7. Changes After looking through and observing my buying behavior, don’t see myself making any changes to my purchasing habits. The worst habits that I had or the days where would spend the most amount of money really weren’t something that I considered to be that bad in the scope of things. How to cite CB Analysis, Papers