Stabsseminar ved Edward Prescott

Institutt for foretaksøkonomi har gleden av å invitere til stabsseminar på tirsdag med professor Edward Prescott fra University of Minnesota og Federal Reserve Bank of Minneapolis. Temaet er What Equity Premium?

08.09.2003 - Knut André Karlstad

Tid: Tirsdag 9. september, klokken 12.15-13.30
Sted: Karl Borchs auditorium

Paper er tilgjengelig på instituttets hjemmesider:
http://www.nhh.no/for/seminars/2003-fall/090903-1.pdf.

og

http://www.nhh.no/for/seminars/2003-fall/090903-2.pdf

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Abstract:

Average Debt and Equity Returns: Puzzling?
Mehra and Prescott (1985) found the difference between average equity and debt returns puzzling because it was too large to be a premium for bearing nondiversifiable aggregate risk. Here, we re-examine this puzzle, taking into account some factors ignored by Mehra and Prescott-taxes, regulatory constraints, and diversification costs-and focusing on long-term rather than short-term savings instruments. Accounting for these factors, we find the difference between average equity and debt returns during peacetime in the last century is less than 1 percent, with the average real equity return somewhat under 5 percent, and the average real debt return almost 4 percent. As theory predicts, the real return on debt has been close to the 4 percent average after-tax real return on capital. Similarly, as theory predicts, the real return on equity is equal to the after-tax real return on capital plus a modest premium for bearing nondiversifiable aggregate risk.

Taxes, Regulations, and the Value of U.S. Corporations: A General Equilibrium Analysis
We derive the quantitative implications of growth theory for U.S. corporate equity valuations. We focus on secular movements in equity values in relation to GDP. We ask specifically whether the theory accounts for the dramatic secular changes observed in the U.S. corporate valuations during the period 1960-2001. We find that the theory accounts for the stock values falling in half relative to GDP in the 1970s and then tripling, with the key factor being changes in the tax and regulatory system.