NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Relative Factor Price Changes and Equity Prices

Peter J. Elmer, Patric H. Hendershott

NBER Working Paper No. 1449
Issued in September 1984
NBER Program(s):   ME

This paper suggests that the decline in equity prices, and thus in Tobin's average q, during the 1970s may be attributable to changes in expected relative factor prices. More specifically, q is shown to be a negative function of the extent to which current relative factor price expectations differ from those when capital was put in place. Because relative factor prices became more volatile after 1967, the observed decline in average q, and thus in stock prices, can be explained by the "relative price" hypothesis.

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Document Object Identifier (DOI): 10.3386/w1449

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