working Paper
Stock price related financial fragility and growth patterns
published
Pascal
Aßmuth
author 22693470
10053
department
The total output of an economy usually follows cyclical movements which are accompanied by similar movements in stock prices. The common explanation relies on the demand side. It points out that stock market wealth drives consumption which triggers production afterward.
This paper focuses on influences via the supply side of the economy. The aim of the paper is to explore channels where stock price patterns influence the amount of credit taken by firms. We examine trend and volatility cycles at the stock market for their impact on the real economy. For
each one we find an application to the investment behaviour of firms. There are three channels
addressed: the stock market valuation as piece of information for the assessment of a firm’s
creditworthiness, the influence on restructuring prospects in times of financial distress and the stock market related remuneration of the top management affecting capital demand. We ask to which extent a channel may contribute to the stock price - output relation when there is mutual feedback. A model `a la Delli Gatti et al. (2005) drives the results. Firms take credit to finance
their production which determines their financial fragility. If their stochastic revenue is too low,
they are bankrupt and leave the economy. The capital loss hurts the bank’s equity base and future credit supply is diminished. This causes business cycles. Results show that if the bank assesses creditworthiness according to the stock price then idiosyncratic stock price fluctuations have only a slight effect as they disturb selection and hinder growth. If stock market optimism matters
for bankruptcy ruling the level of stock owners’ influence does not matter. If optimism is wide spread among stock investors however, investment behaviour is also correlated through the stock prices and this results in huge real economy cycles without any long-term growth. If volatility is considered in the decision of managers they act more prudently and this fosters growth.
https://pub.uni-bielefeld.de/download/2732479/2732484/IMW_working_paper_539.pdf
application/pdfno
Center for Mathematical Economics2015
eng
Heterogeneous Agents ModelsFinancial FragilityStock PricesBusiness Cycles
0931-6558urn:nbn:de:0070-pub-27324794
53937
P. Aßmuth, <em>Stock price related financial fragility and growth patterns</em>, Center for Mathematical Economics Working Papers, vol. 539, Bielefeld: Center for Mathematical Economics, 2015.
Aßmuth P (2015) <br /><em>Stock price related financial fragility and growth patterns</em>. Center for Mathematical Economics Working Papers; 539.<br />Bielefeld: Center for Mathematical Economics.
Aßmuth, Pascal. <em>Stock price related financial fragility and growth patterns</em>. Bielefeld: Center for Mathematical Economics, 2015. Center for Mathematical Economics Working Papers. 539.
Aßmuth P. <em>Stock price related financial fragility and growth patterns</em>. Center for Mathematical Economics Working Papers. Vol 539. Bielefeld: Center for Mathematical Economics; 2015.
Aßmuth, P. (2015). Stock price related financial fragility and growth patterns. <em>Center for Mathematical Economics Working Papers</em>, 539, Bielefeld: Center for Mathematical Economics.
Aßmuth, P. (2015). <em>Stock price related financial fragility and growth patterns</em> (Center for Mathematical Economics Working Papers, 539). Bielefeld: Center for Mathematical Economics.
Aßmuth, P. (2015): Stock price related financial fragility and growth patterns. Bielefeld: Center for Mathematical Economics.
Aßmuth P (2015) Center for Mathematical Economics Working Papers; 539.<br />Bielefeld: Center for Mathematical Economics.
<div style="text-indent:-25px; padding-left:25px;padding-bottom:0px;">Aßmuth, P. (2015). <em>Stock price related financial fragility and growth patterns</em> (Center for Mathematical Economics Working Papers, 539). Bielefeld: Center for Mathematical Economics.</div>
<div style="text-indent:-25px; padding-left:25px;padding-bottom:0px;">Aßmuth, Pascal. 2015. <em>Stock price related financial fragility and growth patterns</em>. Vol. 539. Center for Mathematical Economics Working Papers. Bielefeld: Center for Mathematical Economics.</div>
P. Aßmuth, <em>Stock price related financial fragility and growth patterns</em>, Center For Mathematical Economics, Bielefeld, <strong>2015</strong>.
Aßmuth, P.: Stock price related financial fragility and growth patterns. Center for Mathematical Economics Working Papers, 539. Center for Mathematical Economics, Bielefeld (2015).
Aßmuth, P., 2015. <em>Stock price related financial fragility and growth patterns</em>, Center for Mathematical Economics Working Papers, no.539, Bielefeld: Center for Mathematical Economics.
<div style="text-indent:-25px; padding-left:25px;padding-bottom:0px;">Aßmuth, P. (2015). <em>Stock price related financial fragility and growth patterns</em> (Center for Mathematical Economics Working Papers). Bielefeld: Center for Mathematical Economics.</div>
27324792015-04-24T08:51:45Z2018-07-24T13:01:02Z