November 27, 2000

Theory and common experience postulate that general economic factors impact stock prices in the aggregate. According to street lore, changes in interest rates, inflation rates, oil prices, exchange rates, tax rates, regulation and trade restrictions have different effects across industry lines and hence asset classes. During the past three decades these variables have covered an extraordinarily wide range of values. Few doubt that these economic shocks have an overall impact on market aggregates. It would seem only natural that such a wide range of values would elicit equivalently dramatic responses from equities. In other words, in addition to an overall stock market effect, there would exist the potential, at least, for great differences in stock returns among various asset classes as well.

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