TY  - JOUR
AU  - McGrattan,Ellen R.
AU  - Prescott,Edward C.
TI  - Is the Stock Market Overvalued?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8077
PY  - 2001
Y2  - January 2001
UR  - http://www.nber.org/papers/w8077
L1  - http://www.nber.org/papers/w8077.pdf
N1  - Author contact info:
Ellen McGrattan
Research Department
Federal Reserve Bank of Minneapolis
90 Hennepin Avenue
Minneapolis, MN 55480
Tel: 612/204-5523
Fax: 612/204-5515
E-Mail: erm@mcgrattan.mpls.frb.fed.us

Edward C. Prescott
Arizona State University
Economics Department
P. O. Box 879801
Tempe, AZ 85287-9801
E-Mail: edward.prescott@asu.edu
AB  - The value of U.S. corporate equities in the first half of 2000 was close to 1.8 times U.S. gross national income. Some stock market analysts have argued that the market is overvalued at this level. We use standard economic theory and find that the market is correctly valued. In theory, the market value of equity plus debt liabilities should equal the value of productive assets plus debt assets. Since the net value of debt is currently low, the market value of equity should be approximately equal to the market value of productive assets.  We find that the market value of productive assets is roughly 1.8 GNPs and is therefore in line with the market value of equity.
ER  -