Corporate Cross-Ownership and Market Aggregates: Oslo Stock Exchange 1980-1990
Posted: 28 Jun 2013 Last revised: 10 Aug 2017
Date Written: August 1, 1994
Corporate cross-ownership results in double counting of assets in the market's valuation of total equity. This paper is the first to use firm-specific data to measure the resulting bias in market capitalization, market portfolio return, capital structure, and the P/E ratio. Based on the population of firms on the Oslo Stock Exchange, we found substantial distortions of market aggregates: The average size of the equity market was overstated by 20%, financial leverage was underestimated by 7%, and the market portfolio return was underestimated by 31%. Double counted earnings offset the bias in market capitalization, leaving the P/E almost undistorted.
Keywords: Cross-ownership, Double-counting, P/E, market returns
JEL Classification: G11, B15
Suggested Citation: Suggested Citation