Macroeconomics 12th Edition by Rudiger Dornbusch ,Stanley Fischer,Richard Startz

Exercise 7

From 1992 through 2001, the average return to holding U.S. common stocks was about 11 percent, which is much higher than the average return experienced from the end of World War II through 1991. Given the model of stock price determination discussed in this chapter, what do such high returns imply about the market's expectations regarding the future profitability of U.S. firms