Is the Stock Market Overvalued? / Ellen R. McGrattan, Edward C. Prescott.

Format:

Book

Author/Creator:

McGrattan, Ellen R.

Contributor:

National Bureau of Economic Research.

Prescott, Edward C.

Series:

Working Paper Series (National Bureau of Economic Research) no. w8077.

NBER working paper series no. w8077

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2001.

Summary:

The value of U.S. corporate equities in the first half of 2000 was close to 1.8 times U.S. gross national income. Some stock market analysts have argued that the market is overvalued at this level. We use standard economic theory and find that the market is correctly valued. In theory, the market value of equity plus debt liabilities should equal the value of productive assets plus debt assets. Since the net value of debt is currently low, the market value of equity should be approximately equal to the market value of productive assets. We find that the market value of productive assets is roughly 1.8 GNPs and is therefore in line with the market value of equity.

Notes:

Print version record

January 2001.