The Aggregate Economic Costs of US Stock Mispricing
AbstractStock mispricing can lead to misallocation and wastage of capital both inter-temporally and across sectors. The USAGE model for the United States is used to quantify economic costs under a number of mispricing scenarios, made operational by shocking Tobin’s q. A two-year Communications and Technology investment boom increases consumption by a Net Present Value (NPV) amount of nearly one per cent, partly due to a positive investment externality onto the US terms of trade. If the investment is wasted, however, this gain in consumption is more than offset, leading to a loss of nearly one-half of a per cent. A protracted ‘capital strike’ across the whole economy subsequent to the boom – mimicking financial distress from a burst bubble – shaves around 7 per cent off consumption if the strike lasts for 3 years, and 10 per cent if it lasts for 5 years.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The Paul Woolley Centre for Capital Market Dysfunctionality, University of Technology, Sydney in its series Working Paper Series with number 4.
Length: 47 pages
Date of creation: 01 Aug 2009
Date of revision:
Contact details of provider:
Postal: PO Box 123, Broadway, NSW 2007, Australia
Phone: +61 2 9514 7777
Fax: +61 2 9514 7711
Web page: http://www.uts.edu.au/research-and-teaching/our-research/paul-woolley-centre
More information through EDIRC
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-10-10 (All new papers)
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Duncan Ford).
If references are entirely missing, you can add them using this form.