The Nobel fight-back by Wall Street's bears

Article Abstract:

Yale University's James Tobin developed a valuation ratio showing when companies find it cheaper to buy new plant than build it, and when it is cheaper to invest directly. The ratio measures share prices in relation to capital stock. The US has seen a faster rise in spending on acquisitions and mergers than in capital spending. The marginal valuation is what concerns companies and this helps explain why there is little capital spending. A rise in monopoly power may help explain an increase in valuation ratios. This valuation ratio was not designed to measure stock market performance, though it has been used for such a purpose.

Economic aspects, Securities industry, Capital investments

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Wall Street: on the line

Article Abstract:

The Dow Jones index has again moved toward a new high in May 1996 following announcements of good corporate results and low levels of inflation. The Dow previously spent three months with no clear upward trend. Optimists argue that demand from mutual funds and companies making acquisitions will continue to boost the market. It is unclear whether shares are overvalued since this depends which measure is taken. Concern over inflation could re-emerge if economic growth strengthens, and this could affect share prices.

Inflation (Finance), Inflation (Economics)

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