IDEAS home Printed from https://ideas.repec.org/a/gam/jjrfmx/v17y2024i3p127-d1360756.html
   My bibliography  Save this article

The Current and Expected Pricing Markup as Derived from the Capital Asset Pricing Model and Tobin’s Q and Applied to the UK’s FTSE 100

Author

Listed:
  • Paul Hackworth

    (Independent Researcher, London KT10 0EL, UK)

Abstract

Price markups and firms’ Tobin’s Q ratios are widely believed to have been increasing in the past several decades. Various models for the calculation of price markups have been developed, each relying on the historically held definition of the ratio of price to marginal cost; however, all of these have methodological drawbacks, and some of the results they have produced have been poorly reflective of the near past wider macroeconomic experience. This paper defines a new approach for the definition and measurement of markup pricing, and it also avoids some of the issues surrounding the marginal cost approaches by using the measure of economic rent and the capital asset pricing model. The results show limited markup pricing for the UK’s FTSE 100 companies (2018–2023), but that certain real estate, technology/media and financial services/equity investment firms have enjoyed higher price markup levels. An analysis of the business models of these firms is used to qualitatively propose explanations for such markups. This work offers formal proof that that the expected price markup is equal to Tobin’s Q and finds that the empiric market level of markup is near equivalent to the market Tobin’s Q; the differences between the markup and Tobin’s Q at the level of the firm are equally assessed. This work challenges the general consensus that price markups are above one and have been increasing; it may also aid policy makers with respect to taxation policy and regulatory measures, as well as the financial management of firms in decisions concerning capital deployment and portfolio management. The method merits expansion to wider data sets, as well as to those from outside of the UK.

Suggested Citation

  • Paul Hackworth, 2024. "The Current and Expected Pricing Markup as Derived from the Capital Asset Pricing Model and Tobin’s Q and Applied to the UK’s FTSE 100," JRFM, MDPI, vol. 17(3), pages 1-17, March.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:3:p:127-:d:1360756
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1911-8074/17/3/127/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1911-8074/17/3/127/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Farhi, Emmanuel & Gourinchas, Pierre-Olivier & Caballero, Ricardo, 2017. "Rents, Technical Change, and Risk Premia: Accounting for Secular Trends in Interest Rates, Returns to Capital, Earnings Yields," CEPR Discussion Papers 11833, C.E.P.R. Discussion Papers.
    2. Gregor Schwerhoff & Ottmar Edenhofer & Marc Fleurbaey, 2020. "Taxation Of Economic Rents," Journal of Economic Surveys, Wiley Blackwell, vol. 34(2), pages 398-423, April.
    3. Ricardo J. Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2017. "Rents, Technical Change, and Risk Premia Accounting for Secular Trends in Interest Rates, Returns on Capital, Earning Yields, and Factor Shares," American Economic Review, American Economic Association, vol. 107(5), pages 614-620, May.
    4. By Kenneth L. Judd & Karl Schmedders & Şevin Yeltekin, 2012. "Optimal Rules For Patent Races," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(1), pages 23-52, February.
    5. Joseph E. Stiglitz, 2015. "The Origins of Inequality, and Policies to Contain It," National Tax Journal, National Tax Association;National Tax Journal, vol. 68(2), pages 425-448, June.
    6. Ricardo J. Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2017. "Rents, Technical Change, and Risk Premia Accounting for Secular Trends in Interest Rates, Returns on Capital, Earning Yields, and Factor Shares," American Economic Review, American Economic Association, vol. 107(5), pages 614-620, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Enrico Sergio Levrero & Giacomo Sbrenna, 2022. "Some Factors Affecting US Capital Profitability over the Last Decades," Bulletin of Political Economy, Bulletin of Political Economy, vol. 16(2), pages 77-101, December.
    2. Francisco Amaral & Martin Dohmen & Sebastian Kohl & Moritz Schularick, 2024. "Interest Rates and the Spatial Polarization of Housing Markets," American Economic Review: Insights, American Economic Association, vol. 6(1), pages 89-104, March.
    3. Juan Passadore & Facundo Piguillem & Adriana Grasso, 2017. "Rising Capital Shares, Risk Taking and The Secular Stagnation," 2017 Meeting Papers 1513, Society for Economic Dynamics.
    4. Jacob A. Kerspien & Jakob B. Madsen, 2024. "Markups, Tobin's q, and the Increasing Capital Share," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 56(2-3), pages 569-587, March.
    5. Noëmie Lisack & Rana Sajedi & Gregory Thwaites, 2021. "Population Aging and the Macroeconomy," International Journal of Central Banking, International Journal of Central Banking, vol. 17(2), pages 43-80, June.
    6. Monica Amici & Emmanuele Bobbio & Roberto Torrini, 2018. "Patterns of Convergence (Divergence) in the Euro Area: Profitability Versus Cost and Price Indicators," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 4(3), pages 367-384, November.
    7. Fernando Broner & Alberto Martin & Jaume Ventura, 2020. "On Public Spending and Unions," Economics Working Papers 1715, Department of Economics and Business, Universitat Pompeu Fabra, revised Nov 2020.
    8. Brand, Claus & Goy, Gavin W & Lemke, Wolfgang, 2020. "Natural rate chimera and bond pricing reality," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224546, Verein für Socialpolitik / German Economic Association.
    9. Loukas Karabarbounis & Brent Neiman, 2019. "Accounting for Factorless Income," NBER Macroeconomics Annual, University of Chicago Press, vol. 33(1), pages 167-228.
    10. Maarten De Ridder, 2024. "Market Power and Innovation in the Intangible Economy," American Economic Review, American Economic Association, vol. 114(1), pages 199-251, January.
    11. Ricardo Reis, 2021. "The constraint on public dept when r," BIS Working Papers 939, Bank for International Settlements.
    12. Piton, Sophie, 2021. "Economic integration and unit labour costs," European Economic Review, Elsevier, vol. 136(C).
    13. Eggertsson, Gauti B. & Robbins, Jacob A. & Wold, Ella Getz, 2021. "Kaldor and Piketty’s facts: The rise of monopoly power in the United States," Journal of Monetary Economics, Elsevier, vol. 124(S), pages 19-38.
    14. Fernando Broner & Alberto Martin & Jaume Ventura, 2021. "On Public Spending and Economic Unions," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 69(1), pages 122-154, March.
    15. Tomas Reichenbachas & Linas Jurkšas & Rokas Kaminskas, 2021. "Natural real rates of interest across Euro area countries: Are R-stars getting closer together?," Bank of Lithuania Discussion Paper Series 24, Bank of Lithuania.
    16. Daisuke ADACHI & Yukiko SAITO, 2020. "Multinational Production and Labor Share," Discussion papers 20012, Research Institute of Economy, Trade and Industry (RIETI).
    17. Charles Goodhart & Manoj Pradhan, 2017. "Demographics will reverse three multi-decade global trends," BIS Working Papers 656, Bank for International Settlements.
    18. Matthew Smith & Danny Yagan & Owen Zidar & Eric Zwick, 2019. "Capitalists in the Twenty-First Century," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(4), pages 1675-1745.
    19. Michael D. Bauer & Glenn D. Rudebusch, 2023. "The Rising Cost of Climate Change: Evidence from the Bond Market," The Review of Economics and Statistics, MIT Press, vol. 105(5), pages 1255-1270, September.
    20. Kevin Rennert & Brian C. Prest & William A. Pizer & Richard G. Newell & David Anthoff & Cora Kingdon & Lisa Rennels & Roger Cooke & Adrian E. Raftery & Hana Sevcikova & Frank Errickson, 2021. "The Social Cost of Carbon: Advances in Long-Term Probabilistic Projections of Population, GDP, Emissions, and Discount Rates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 52(2 (Fall)), pages 223-305.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jjrfmx:v:17:y:2024:i:3:p:127-:d:1360756. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.