Time-Varying Drivers of Stock Prices

This paper provides novel evidence of the time-varying roles of subjective expectations in explaining stock price variations from 1976 to 2020. Cash flow expectations matter more during times of financial uncertainty and recessions, especially among the hardest-hit industries such as Telecommunications during the Dot-com Bubble, Financials during the Great Recession, and Healthcare during the Covid-19 pandemic. Conversely, discount rates explain more price variations during expansionary periods. Finally, inflation expectations, while accounting for 60% of price fluctuations in the high inflationary environment before 2000, play a negligible role thereafter.