Year: 1983
Type: report
Abstract: Most explanations for the decline in share values over the past two decades have focused on the concurrent increase in inflation.This paper considers an alternative explanation: a substantial increase in the riskiness of capital investments.We show that the variance of firms' real gross marginal return on capital has increased significantly, increasing the relative riskiness of investors' returns on equity, and that this can explain a large part of the market decline.We also assess the effects of increase in the mean and variance of the inflation rate, and a decline in firms' expected return on capital.
DOI: 10.3386/w1186
Author: Robert Pindyck
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
Funder: National Science Foundation
OpenAlex ID: W1566325108