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The Aggregate Economic Costs of US Stock Mispricing

Bird, R, Menzies, G, Dixon, P and Rimmer, M (2009) The Aggregate Economic Costs of US Stock Mispricing. Working Paper. UNSPECIFIED.

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Abstract

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.

Item Type: Monograph (Working Paper)
Subjects: FOR Classification > 1402 Applied Economics
Faculty/School/Research Centre/Department > Centre of Policy Studies (CoPS)
Depositing User: Symplectic Elements
Date Deposited: 11 Sep 2015 01:29
Last Modified: 30 May 2017 05:53
URI: http://vuir.vu.edu.au/id/eprint/29381
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