The Aggregate Economic Costs of US Stock Mispricing
Stock 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.
|Date of creation:||01 Aug 2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
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
When requesting a correction, please mention this item's handle: RePEc:uts:pwcwps:4. See general information about how to correct material in RePEc.
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.