On Mon, 23 Apr 2001, you wrote: > On Tue, 17 Apr 2001, Gerald_A_Levy wrote: > > > * What, if anything, is different about the current > > bubble in the U.S. stock market? > > What bubble? I'm teaching econometrics this semester, and to > illustrate the "error correction" model specification I ran an error > correction model of the Dow-Jones average, using quarterly data, > 1959-2000. I hypothesized that in equilibrium the Dow ought to be > proportional to the value of an annuity defined as the value of > after-tax corporate profits divided by a suitable long-term interest > rate (i.e. the present value of the hypothetical stream of current > profits, maintained indefinitely). The model gave an equilibrium > proportionality factor of about 0.90 -- i.e. the "right" value for the > Dow index is about 90% of the present value of the corporate profit > stream, in billions of dollars. We're currently just about at that. > For most of the 1990s the Dow was below equilibrium, and busy catching > up. > > Allin Cottrell. Did you take a constant rate of interest or the long run money market rate? -- Paul Cockshott paul@cockshott.com
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