TY  - JOUR
AU  - Brainard,William C.
AU  - Shapiro,Matthew D.
AU  - Shoven,John B.
TI  - Fundamental Value and Market Value
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3452
PY  - 1990
Y2  - September 1990
UR  - http://www.nber.org/papers/w3452
L1  - http://www.nber.org/papers/w3452.pdf
N1  - Author contact info:
William C. Brainard
Department of Economics
Yale University
PO Box 208268
New Haven, CT 06520-8268
E-Mail: william.brainard@yale.edu

Matthew D. Shapiro
Department of Economics
University of Michigan
611 Tappan St
Ann Arbor, MI 48109-1220
Tel: 734/764-5419
Fax: 734 764-2769
E-Mail: shapiro@umich.edu

John B. Shoven
Department of Economics
579 Serra Mall at Galvez Street
Stanford, CA 94305-6015
Tel: 650/723-3273
Fax: 650/723-8611
E-Mail: shoven@stanford.edu
AB  - Much of James Tobin's professional life has been devoted to studying the interrelationship between the goods and financial markets. His general equilibrium approaches stresses the interaction of the demand for financial assets with the decision to accumulate productive capital. His emphasis on q, the ratio of market value of assets to their replacement cost, has shaped how students of the aggregate economy understand the link between the stock market and fixed investment. This paper examines the empirical linkage between fundamental returns on physical corporate assets and market return on financial claims on those assets. It defines the fundamental return as real cash flow divided by replacement cost. It examines whether the market return on individual firms respond more to aggregate shocks to the fundamental return or to the market return itself. It then examines whether aggregate market risk or aggregate fundamental risk is priced. Although market risk is priced, the paper does find that fundamental risk is an important factor in explaining risk premia.
ER  -