Previous Research

Part of the Contributions to Economics book series (CE)


Sprinkel (1964) pioneered the investigation of the relationship between the amount of money and the stock market. He justifies his approach with the monetary portfolio model.His findings are based on a graphical inspection of money growth and stock market turning points. His main conclusion is that stock prices lag behind changes in the growth rate of money supply. Applying this finding to the market, Sprinkel (1964, p. 149) formulates an investment rule, which states that “[a]ll funds were invested in stocks until monetary growth had declined 15 months, and then all funds were invested in bonds until monetary growth had risen two months.” This rule is based on the finding that for the period under investigation between 1918 and 1960 a bear market in stock prices was predicted 15 months after each peak in monetary growth, and that a bull market was predicted two months after each trough of monetary growth. One downside of Sprinkel’s analysis is the ex-post identification of peaks and troughs, because he uses data which is only available several quarters after the peaks and troughs. Hence, it is difficult to apply his rule in real time. The reason for this is that he identifies peaks and troughs not only numerically but also pays attention to business cycle peaks as identified by the National Bureau of Economic Research (NBER). The information from the NBER, however, is only available several quarters after the turning points (Rozeff 1974, p. 288).


Stock Market Asset Price Euro Area Money Supply Stock Prex 

Copyright information

© Springer-Verlag Berlin Heidelberg 2011

Authors and Affiliations

  1. 1.McKinsey and CompanyStuttgartGermany

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