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Equity prices, share price valuation, crashes and depressions

Author

Listed:
  • Madsen, Jakob B.

    (Institute of Economics and EPRU, University of Copenhagen)

Abstract

The recent controversy about whether share prices reflect their fundamental value hinges, to a large extent, on expected returns to shares. This paper argues that returns to shares are determined endogenously by macroeconomic factors and shows that annualrealreturnsto shares converge to 8-10% in the long run, but have fluctuated on decennial frequencies due to fluctuations in factor shares and the marginal productivity of capital. Using this evidence it is argued that current share prices still need further downward correction and that the decline in share prices since 2000 will have large macroeconomic implications.

Suggested Citation

  • Madsen, Jakob B., 2003. "Equity prices, share price valuation, crashes and depressions," Nationaløkonomisk tidsskrift, Nationaløkonomisk Forening, vol. 2003(1), pages 3-34.
    • Handle: RePEc:hhs:jdaecn:0196
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    More about this item

    Keywords

    macroeconomic; equity prices; share price valuation;
    All these keywords.

    JEL classification:

    • A10 - General Economics and Teaching - - General Economics - - - General

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