Relative Factor Price Changes and Equity Prices

25 Pages Posted: 28 Jun 2004 Last revised: 19 Jun 2021

See all articles by Peter J. Elmer

Peter J. Elmer

Government of the United States of America - Division of Research and Statistics

Patric H. Hendershott

University of Aberdeen - Centre for Property Research; National Bureau of Economic Research (NBER)

Date Written: September 1984

Abstract

This paper suggests that the decline in equity prices, and thus in Tobin's average q, during the 1970s may be attributable to changes in expected relative factor prices. More specifically, q is shown to be a negative function of the extent to which current relative factor price expectations differ from those when capital was put in place. Because relative factor prices became more volatile after 1967, the observed decline in average q, and thus in stock prices, can be explained by the "relative price" hypothesis.

Suggested Citation

Elmer, Peter J. and Hendershott, Patric H., Relative Factor Price Changes and Equity Prices (September 1984). NBER Working Paper No. w1449, Available at SSRN: https://ssrn.com/abstract=334280

Peter J. Elmer

Government of the United States of America - Division of Research and Statistics ( email )

550 Seventeenth Street, NW
Washington, DC 20057
United States
202-898-7366 (Phone)
202-898-7222 (Fax)

Patric H. Hendershott (Contact Author)

University of Aberdeen - Centre for Property Research ( email )

Aberdeen AB24 2UF
Scotland

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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