How can we know if a stock-market is over or undervalued? In the Authers' Note below, Andrew Smithers explains the various ways in which we can assess whether a market is over or undervalued. He favours Tobin's Q and CAPE, both of which suggest that the market is 70% overvalued at the minute!
My colleague and former PhD student Gareth Campbell has created a website about the British Railway Mania - click here . This episode has been described by the Economist as probably the greatest bubble in human history. Gareth's website provides background on the Mania and posits some explanations for the 'bubble'. In his explanation of why the bubble happened, Gareth places a lot of emphasis on investor myopia regarding future dividends and uncalled capital. His study of investors during the episode does not support the view that this episode was fuelled by naive and irrational investors.