文档介绍：146 PART II Financial Markets
Application ary Policy and Stock Prices
Stock market analysts tend to hang on every word that the Chairman of the
Federal Reserve utters because they know that an important determinant of
stock prices is ary policy. But how does ary policy affect stock
prices?
The Gordon growth model in Equation 5 tells us how. ary policy
can affect stock prices in two ways. First, when the Fed lowers interest rates,
the return on bonds (an alternative asset to stocks) declines, and investors are
likely to accept a lower required rate of return on an investment in equity
(ke). The resulting decline in ke would lower the denominator in the Gordon
growth model (Equation 5), lead to a higher value of P0, and raise stock
prices. Furthermore, a lowering of interest rates is likely to stimulate the
economy, so that the growth rate in dividends, g, is likely to be somewhat
higher. This rise in g also causes the denominator in Equation 5 to fall, which
also leads to a higher P0 and a rise in stock prices.
As we will see in Chapter 26, the impact of ary policy on stock
prices is one of the key ways in which ary policy affects the economy.
Application The September 11 Terrorist Attacks,
the Enron Scandal, and the Stock Market
In 2001, two big shocks hit the stock market: the September 11 terrorist
attacks and the Enron scandal. Our analysis of stock price evaluation, again
using the Gordon growth model, can help us understand how these events
affected stock prices.
The September 11 terrorist attacks raised the possibility that terrorism
against the United States would paralyze the country. These fears led to a
downward revision of the growth prospects for . companies, thus lower-
ing the dividend growth rate (g) in the Gordon model. The resulting rise in
the denominator in Equation 5 would lead to a decline in P0 and hence a
decline in stock prices.
Increased uncertainty for the . economy would al