 Are share prices still too high?David G. McMillan Research in International Business and Finance, 2009, vol. 23, issue 3, 223-232 Abstract: The current value of the dividend yield is at a historically low level. Since the end of the bear market in 2003 prices have rebounded strongly such that this yield is at a lower point than any previous in its history except at the height of the late 1990s bubble. The price-earnings ratio paints a similar picture and raises the issues of equity overvaluation and price falls. This paper resolves to examine whether prices are over-valued by arguing that such measures do not have a single attractor point and hence relying on historical means as a guide to mis-valuation is not a valid approach. In explaining why the higher equity prices relative to dividends are supported we provide evidence consistent with existing arguments that low and stable inflation is a particular driver to better equity valuation and note that the last decade has seen a period of historically low and stable inflation. Hence, the stable economic environment has led to more accurate valuation of stocks and lower required rates of return, thus supporting higher prices. Keywords: Present; value; model; Structural; breaks; Equity; valuation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:23:y:2009:i:3:p:223-232 Access Statistics for this article Research in International Business and Finance is currently edited by T. Lagoarde Segot More articles in Research in International Business and Finance from Elsevier |
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