This note provides a brief overview of the relationship between the macro behavior of the economy and the consequent impact on investment yields. It's designed to be used within a course on portfolio management or investments. The note attests that this theorem implies that the long-run expected real returns on equities are determined by the estimated average growth rate and the dividend growth rate in dividends, which in turn is dependent upon long run macroeconomic growth.
Anticipated long-term real returns on bonds are determined by the yield to maturity and the long run inflation rate. The note then goes on to confirm the long run behavior of four key macroeconomic variables: output, inflation, interest rates, and exchange rates. An overview of how to identify business cycle positions is an important component of this investigation. Additionally, the evaluation centers on approaches for identifying disequilibrium situations for interest rates. Finally, the note concludes by discussing some short run effects on macroeconomic variables and the crucial function of monetary policy.
Publication Date: 08/16/1999
This is just an excerpt. This case is about Finance
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