Abstract
The use of speculative investment strategies, given the small number of firms traded in the Czech stock market, has led to large fluctuations that seem to have no relevance for real processes in individual firms. Also, the behavior of global stock-market indices seems to be driven more by animal spirits than by economic fundamentals. Czech economists and stock-market analysts often conclude that the developments at the Prague Stock Exchange (PSE) can hardly provide important information about real processes in firms. This is, however, only a hypothesis that needs to be tested. While the short-run changes in individual stock-market prices are hardly explained by any real-sector variable, there is some, as yet partial, evidence that the long-run average price of a firm on the stock exchange can be explained by some real factors.1 However, to date, there has been no attempt in the literature to
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