IDEAS home Printed from https://ideas.repec.org/a/aan/journl/v3y2021i1p56-66.html
   My bibliography  Save this article

US Stock Market at the Background of the Covid-19 Pandemic: Implication for Valuation

Author

Listed:
  • Dimiter Nenkov

    (Department of Finance, University of National and World Economy, Sofia, Bulgaria)

Abstract

The main objective of this study is to discuss the forces driving today’s US stock market levels, in an attempt of assessing their reasonability. This is not the first research of this kind of the author, but the approach now is a little bit different. Some important issues are raised regarding the different types of players on the stock market and their potential influence on its dynamics. The S&P 500 PE ratios are analyzed in historic plan and subsequently used for deriving the implied capitalization rate and cost of equity for different sub-periods. The results indicate for atypically high current PE ratios, and unreasonably low cost of equity. One of the conclusions is that to a great extent this is caused by the policy of low interest rates and quantitative easing, and is an important factor driving high price levels in the short run. It is not logical to accept this as a normal cost of equity level, meaning that it could not be sustainable in the long run. The implication for valuation of stocks is that fundamental analysts and investors would better avoid the temptation of using the current cost of equity as it is not representative for the purpose of fundamental models.

Suggested Citation

  • Dimiter Nenkov, 2021. "US Stock Market at the Background of the Covid-19 Pandemic: Implication for Valuation," Finance, Accounting and Business Analysis, University of National and World Economy, Institute for Economics and Politics, vol. 3(1), pages 56-66, April.
    • Handle: RePEc:aan:journl:v:3:y:2021:i:1:p:56-66
    as

    Download full text from publisher

    File URL: http://faba.bg/index.php/faba/article/view/71/38
    Download Restriction: no
    ---><---

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aan:journl:v:3:y:2021:i:1:p:56-66. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Yanko Hristozov (email available below). General contact details of provider: https://edirc.repec.org/data/ienwebg.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.