[PEN-L:3800] Re: stock market & investment; reply to henwood

[dhenwood@xxxxxxxxx (Doug Henwood)]

At 1:19 PM 4/16/96, Christopher Niggle wrote:

>Doug:  I've not seen the paper you refer to - I'd like to, may I have the
>citation? -

Ronald Morck, Andrei Shleifer, and Robert Vishny, "The Stock Market and
Invesetment: Is the Market a Sideshow," Brookings Papers on Economic
Activity 2 (1990), pp. 157-215.

>but off the top of my head, I'd argue that stock market
>instability in economies such as the US, in which very few firms finance
>investment through the sale of equity shares, might not be very
>important.  But in other countries, or in the US in other periods (such
>as the 1920s), IF equity shares were important sources of external
>finance than instability would be an important factor.  So that it is an
>important factor to keep in mind for purposes of interpreting historical
>events (the great depression) and for understanding some economies.
>How's that sound?  Qualified support for the financial instability
>hypothesis.  And also Keynes stressed the importance of long rates of
>interest (and bond prices) for investment....not the stock market.

They show that neither stock prices nor the issuance of new shares offer
any significant explanation of the variance in investment, both at the firm
and aggregate levels. Among other things, it seems yet another nail in the
coffin of q theory, which played an important role in the GT chap. 12, no?

Doug

--

Doug Henwood
Left Business Observer
250 W 85 St
New York NY 10024-3217
USA
+1-212-874-4020 voice
+1-212-874-3137 fax
email: <dhenwood@xxxxxxxxx>
web: <http://www.panix.com/~dhenwood/LBO_home.html>