Theories Explaining Stock Price Behavior: A Review of the Literature
Abstract
Estimation of stock price behavior is important for several reasons and for different stakeholders in the market. Many studies are trying to put forward theories to explain this phenomenon and more still have tried to use these theories in order to predict future changes in prices. The growing linkages of national markets in currency, commodity and stock with world markets and the existence of common players, have given stock price behavior a new property – that of its speedy transmissibility across markets. The present study aims to review the existing literature of the theories explaining stock price behavior. To review the literature, this study presented the theories in two different eras. First era is the pre modern era in financial theory and the second one is the theories in modern financial economics with technological development
References
Abid Hameed, Hammad Ashraf. (2006). Stock Market Volatility and Weak-Form Efficiency: Evidence from an Emerging Market. The Pakistan Development Review, 45(Winter), 1029–1040.
Alexander, S.S. (1961), Price Movements in Speculative Markets: Trends or Random Walks, Industrial Management Review, 2 (2),7-26.
Amaro De Matos, J. (2001). Theoretical Foundations of Corporate Finance.Princeton, NJ: Princeton University Press
Ang, A., Goetzmann, W. N., & Schaefer, S. M. (2011). Review of the Efficient Market theory and Evidence, 1–64.
Archer, S. H. and D’Ambrosio, E.C. (1969).Administração Financeira: Teoria E Aplicação. São Paulo: Atlas.
Assaf Neto, A. (2003). Finanças Corporativas E Valor.São Paulo: Atlas
Bachelier, L., (1901). Mathematical theory of the game.AnnalesScientifiques of the EcoleNormaleSuperieure, 18, 143–210.
Bachellier L. (1900). Theorie De La Speculation Paris: Gauthier-Villars Reprinted in English (Bones Trans) in Cootner P.H. Edited (1964) the Random Character of Stock Market Prices: M.I.T. Press.
Balling, M., & Gnan, E. (2013). The Development of Financial Markets and Financial theory: 50 Years of interaction. Suerf 50th Anniversary Volume Chapters, (November), 157–194. Retrieved from http://suerf.org/download/50ymf/50y_ch5.pdf
Barakat, M. R., Elgazzar, S. H., & Hanafy, K. M. (2015). Impact of Macroeconomic Variables on Stock Markets: Evidence from Emerging Markets. International Journal of Economics and Finance, 8(1), 195. http://doi.org/10.5539/ijef.v8n1p195
Beenstock, M. & Chan, K. F. (1986). Testing the Arbitrage Pricing theory in the United Kingdom, Oxford Bulletin of Economics and Statistics, 48(2), 121-141.
Black, F, Scholes M. (1973). The Pricing of Options and Corporate Liabilities. J. Pol. Economy 81,637-654
Black, F., Jensen, M. C. and Scholes, M. (1972). The Capital Asset Pricing Model: Some Empirical Tests. In M.C. Jensen, Studies in the theory of Capital Markets. New York: Praeger.
Chen, N. (1983). Some Empirical Tests of the theory of Arbitrage Pricing.Journal of Finance, 38, 1393-1414.
Chen, N., Roll, R., Ross, S.A. (1986). Economic Forces and the Stock Market, Journal of Business, 59(3), 383-403.
Chen, S.J. & Jordan, B.D. 1993, Some Empirical Tests in the Arbitrage Pricing theory: MacrovariablesVs. Derived Factors. Journal of Banking and Finance, 7(1),65- 89.
Cheng, A.C.S. 1995, UK Stock Market and Economic Factors: A New Approach. Journal of Business Finance and Accounting, 22,(1),129-142.
Cheng, A.C.S. 1998, International Correlation Structure of Financial Market Movements--the Evidence from the UK and the US, Applied Financial Economics, 8(1), 1-12.
Chew, D. H., Jr. (1993). Introduction: Financial innovation in the 1980S. In the New Corporate Finance.New York: Mcgraw-Hill.
Cho, D.C., Elton, E.J. & Gruber, M.J. 1984, on the Robustness of the Roll and Ross Arbitage Pricing theory.Journal of Financial and Quantitative Analysis, 19(1),1-12.
Clare, A.D. & Thomas, S.H. 1994, Macroeconomic Factors, the APT and the UK Stock Market.Journal of Business Finance and Accounting, 21(3), 309-330.
Clarke, J., Jandik, T. &Mandelker, G. Avalable at: http://www.e-m- h.org/ClJM.pdf
Clarkson, G. P. E. (1964). Empirical Foundations of Economic Analysis.Sloan School of Management, Working Paper, No. 83, M.I.T.
Cootner, Paul H. (1962). An Analysis of Security Recommendations By Brokerage House. Quarterly Review of Economics and Business, 2(2), 19-28.
Cootner, Paul H. (1962). Stock Prices: Random vs. Systematic Changes, industrial Management Iii, 24-45.
Copeland, T. E., Weston, J. F., and Shastri, K. (2005).Financial theory and Corporate Policy. USA: Pearson Addison Wesley.
Cowles, A. (1960). A Revision of Previous Conclusions Regarding Stock Market Behavior.Econometrica, 28, 909-915.
Cowles, A., & Jones, H. E. (1937).Some A Posteriori Probabilities in Stock Market Action.Pdf. Econometrica. https://doi.org/10.2307/1905515
Cox, J.C., Ingersoll, J.E. & Ross, S.A. (1985), An Intertemporal General Equilibrium Model of Asset Prices, Econometrica, 53(2), 363-84
Dempsey, M. (2013). The Capital Asset Pricing Model (CAPM): the History of A Failed Revolutionary Idea in Finance? Abacus, Vol. 49, Supplement, 2013.Retrieved from http://dx.doi.org/10.1111/j.1467-6281.2012.00379.x.
Dhrymes, P, Friend, I &Groenewold, B (1984) A Critical Re-Examination of the Empirical Evidence on the Arbitrage Pricing theory.Journal of Finance. 39(20),323-346.
Dimson, E., and Mussavian, M. (1999). Three Centuries of Asset Pricing. Journal of Banking and Finance, 23, 1745-1769.
Dimson, E., and Mussavian, M. (1999). Three Centuries of Asset Pricing. Journal of Banking and Finance, 23, 1745-1769.
Elton, E. J., and Gruber, M. J. (1997).Modern Portfolio theory, 1950 to Date.Journal of Banking and Finance, 21, 1743-1759
Engel, C. & Rodrigues, A.P., 1989, Tests of International CapmWith Time-Varying Covariances, Journal of Applied Econometrics, 4, 119-38.
Erdugan, R. (2012). The Effect of Economic Factors on the Performance of the Australian Stock Market.
Faff, R. & Chan, H. (1998). A Multifactor Model of Gold industry Stock Returns: Evidence from the Australian Equity Market, Applied Financial Economics, 8(1),21-28.
Fama, E. (1970). Efficient Capital Markets: A Review of theory and Empirical Work. The Journal of Finance, 25,(2),283-417.
Fama, E. F. (1991). Efficient Capital Markets: Ii. The Journal of Finance, 46(5), 1575-1617.
Fama, E. F., & French, K. (1992).The Cross-Section of Expected Stock Returns. The Journal of Finance, 47(2), 427-465.
Fama, E. F., & French, K. (1993).Common Risk Factors in the Returns on Stocks and Bonds. Journal of Financial Economics, 33, 3-56.
Fama, E. F., & French, K. (1996).Multifactor Explanation of Asset Pricing Anomalies. The Journal of Finance, 51, 55-84.
Fama, E. F., & French, K. (2004). The Capital Asset Pricing Model: theory and Evidence. Journal of Economic Perspectives, 18(3), 25-46.
Fama, E. F., (1970), Stock Performance, real activity, inflation and money, American Economic Review, 71, 545-65
Fama, Eugene F. and James D. Macbeth, 1973, Risk, Return, and Equilibrium: Empirical Tests, Journal of Political Economy 71, 607-636.
Famá, R., and Galdão, A. (1996). A FunçãoFinanceira: Uma AnáliseEsquemática De SuaEvolução. In Anais Do ISemead: 2, 100-105. São Paulo: Fea/Usp
Gippel, J.K., (2013). A Revolution in Finance?Australian Journal of Management, 38(1), 125-46.
Granger, C. W. J. and Morgenstern, O. (1963), Spectral Analysis of New York Stock Market Prices, Kyklos, 16 (1), 1–27.
Groenewold, N. & Fraser, P. (1997). Share Prices and Macroeconomic Factors, Journal of Business Finance and Accounting, 24, (9/10), 1367-1383.
J. P. Morgan/Reuters. (1996). Risk metrics – Technical Document, 4.Ed, New York and London.
Jenkins, G. M. and Watts, D. G. (1968) Spectral Analysis and Its Applications.Holden Day, San Francisco
Jensen, M. C. (1967). Random Walk: Reality or Myth - Comment. Financial Analysts Journal, 1967, 23(6), 77-85.
Jorion, P. (2006). Value at Risk: the New Benchmark For Managing Financial Risk, 3.Ed, Mcgraw-Hill, New York.
Kendall, M. G., & Hill, A. B. (1953). The Analysis of Economic Time-Series-Part I: Prices. Journal of the Royal Statistical Society, Series A (General). https://doi.org/10.2307/2980947
Lakonishok, J., and Shapiro, A. C. (1986). Systematic Risk, total Risk and Size As Determinants of Stock Market Returns. Journal of Banking and Finance, 10(1), 115-132.
Levy, A. R. (1966).An Evaluation of Selected Applications of Stock Market Timing Techniques, Trading Tactics and Trend Analysis.The American University, Washington, D.C., 1966.
Lin, C., Fang, C.-R., & Cheng, H. (2008). Relationships between Oil Price Shocks and Stock Market: An Empirical Analysis from the Greater China. Energy Policy, 36(9), 3544–3553.
Lintner, John. (1965). Security Prices, Risk, and Maximal Gains from Diversification. Journal of Finance, 20, 587-616.
Lintner, John. (1969). The Aggregation of investors Diverse Judgments and Preferences in Purely Competitive Security Markets. Journal of Financial and Quantitative Analysis. 4, 347–400.
Markowitz, H. (1952). Portfolio Selection, Journal of Finance, 7(1),77.
Merton, R.C. (1973). An intertemporal Capital Asset Pricing Model, Econometrica, 41,(5), 867-87.
Merville, L.J., Hayes-Yelken, S. &Xu, Y. (2001).Identifying the Factor Structure of Equity Returns, Journal of Portfolio Management, 27(4), 51-61.
Merville, L.J., Hayes-Yelken, S. &Xu, Y. (2001).Identifying the Factor Structure of Equity Returns, Journal of Portfolio Management, 27(4), 51-61.
Miller, M. H. & Modigliani, F. (1961). Dividend Policy, Growth and the Valuation of Shares, The Journal of Business, 34(4),411-33.
Miller, M. H. (1999). The History of Finance.The Journal of Portfolio Management, 95–101. https://doi.org/10.3905/jpm.1999.319752
Modigliani, F. & Miller, M.H. (1958). The Cost of Capital, Corporation Finance and the theory of investment, American Economic Review, 48(3), 261-297.
Mossin, J. (1966). Equilibrium in a Capital Asset Market, Econometrica, 34(4), 768-783.
Myers, S.C., 2001, Capital Structure, Journal of Economic Perspectives, 15, (2), 81-102.
Negishi, T. (1962). The Stability of Competitive Economy: A Survey Article. Econometrica, J30, 324- 71.
Osborne, M. F. M. 1959. Brownian Motion in the Stock Market. Operations Research, 7, 145-173.
Osborne, M. F. M. 1962, Periodic Structure in the Browian Motion of Stock Prices. Operations Research, 10, 345-79.
Priestley, R. (1996). the Arbitrage Pricing theory, Macroeconomic and Financial Factors, and Expectations Generating Processes, Journal of Banking and Finance, 20(5),869- 690.
Raju, M. T., &Ghosh, A. (2004).Stock Market Volatility – An International Comparison.Securities and Exchange Board of India, Working Paper Series No. 8.
Roberts, H. V. (1959). Stock Market Patterns and Financial Analysis Methodological Suggestions.Journal of Finance, 14(1), 1-10.
Roll, R. & Ross, S.A. 1980, An Empirical investigation of the Arbitrage Pricing theory, Journal of Finance, Vol. 35, No. 5, Pp. 1073-1103.
Roll, R. & Ross, S.A. 1995, the Arbitrage Pricing theory Approach to Strategic Portfolio Planning, Financial Analysts Journal, 51,(1),122-131.
Roll, R. (1977), Oil Prices, Stock Market, Economic Activity and Employment in Greece, Energy Economics, 23, 511-532.
Ross, S.A. 1976, the Arbitrage theory of Capital Asset Pricing, Journal of Economic theory, 13, 341-61.
Ross, Stephen A. 1978A. A Simple Approach to the Valuation of Risky Streams.Journal of Business 51(3),453–75.
Saito, A. T., Savoia, J. R. F., &Fama, R. (2013).Financial theory evolution.International Journal of Education and Research, 1(4), 1–18.
Sharpe, W. F. 1964, Capital Assets Prices: A theory of Market Equilibrium Under Conditions of Risk, Journal of Finance, 19(3), 425-442.
Sharpe, William F. 1963. A Simplified Model for Portfolio Analysis. Management Science, 19, 277-93.
Shiller, R. J. (2003).From Efficient Markets Theory to Behavioral Finance.Journal of Economic Perspectives, 17(1), 83–104. http://doi.org/10.1257/089533003321164967
Sinclair, N.A. (1984). Aspects of the Factor Structure Implicit in the Australian industrial Equity Market: February 1958 to August 1977, Australian Journal of Management, 9(1), 23-36.
Slutsky, E. (1937). The Summation of Random Causes as Source of Cyclic Process.Econometrica, 5(2), 105-46.
Statman, M. (2010). What is behavioral finance? Research Foundation Publications, 2(2), 1–12.
Stiglitz, J.E. (1969). A Re-Examination of the Modigliani-Miller theorem, American Economic Review, 59(5), 784-93.
Tease, W. (1993). The Stock Market and investment.OECD Economic Studies, 20 (Spring), 41-63.
Tobin, J. (1958), Liquidity Preference as Behaviour towards Risk, Review of Economic Studies, 25, 65-86.
Weston, J. F. (1975). Finanças De Empresas. São Paulo: Atlas.
Working, H. (1934) A Random-Difference Series for Use in the Analysis of Time Series.Journal of the American Statistical Association 29, 11–24.
Copyright (c) 2018 Fatima Ruhani,Md. Aminul Islam,Tunku Salha Tunku Ahmad
This work is licensed under a Creative Commons Attribution 4.0 International License.
