A BEJM Contributions article.

Abstract

Many existing studies have found a correlation between inflation and price dispersion in goods markets. In this paper, we document that a similar correlation can be found in equity markets. We estimate the correlation between overall price changes and dispersion in the NYSE and in the NASDAQ. Using quarterly data from 1975 to 1999, we compare the stock market correlations with those of goods markets. We find striking correlations in both sets of markets. The most prominent explanations of the goods market correlation (such as menu costs) cannot plausibly apply to equity markets. Thus, our findings indicate that the correlation appears to be more widespread than can be accounted for by the usual explanations.

Submitted: July 26, 2002 · Accepted: October 22, 2003 · Published: January 13, 2004

Originally published in Contributions to Macroeconomics.

Recommended Citation

Parsley, David C. and Popper, Helen A. (2004) "Aggregate Price Changes and Dispersion: A Comparison of the Equity and Goods and Services Markets," Contributions to Macroeconomics: Vol. 4 : Iss. 1, Article 1.
Available at: http://www.bepress.com/bejm/contributions/vol4/iss1/art1