a discounted terminal share price, where we have used : equation ( 7 ) says that the expected company - specific risk premium is constant and pre - determined based on period t information. equation ( 8 ) says that expectations of future risk - free rates are defined by the path of the risk - free forward rate curve observed at time t. equation ( 6 ) can be modified with a myopia coefficient to give a generalised version of ( 2 ) : the null hypothesis – no short - termism – implies x = 1. drawing on evidence across time and industrial sectors, it is this restriction we now test. 4. testing for short - termism the data comprises a panel of 624 firms listed on the uk ftse and us s & p indices over the period 1980 – 2009. 20 these span a broad range of industrial sectors, as shown in table 2. table 2 number of firm level observations in each industry segment energy financials & utilities index consumer s & p ftse health it industrials materials total data are from thomson reuters datastream. bis central bankers ’ speeches the core inputs to the analysis are firm - level measures of dividends and equity prices. the average dividend - price ratio in each industry segment is shown in table 3. the mean dividend - price ratio across the panel is 2. 6 %. but there is a fairly significant degree of crosssectoral and time - series dispersion. for example, dividend - price ratios are almost twice as high in the energy and utilities sector as the health and pharmaceuticals sector. and mean dividend - price ratios were two thirds third higher in the 1990s compared to the 1980s. table 3 mean dividend - price ratio for firms in each industry segment consumer energy & utilities financials health it industrials materials s & p 1. 94 2. 82 3. 19 1. 87 1. 69 2. 55 2. 22 ftse 4. 12 3. 96 2. 63 1. 38 2. 92 3. 81 3. 16 to estimate ( 9 ), we require a selection of quantitative inputs. taking these in turn : ( a ) company - specific risk premium following miles ( 1993 ), the company risk premium is modelled based on firm - specific characteristics, in particular the company beta and the level of gearing : where. 21 betas are estimated using daily return data for firms listed on the s & p 500 and ftse, together with daily data for the indices themselves. 22 mean

tech sector slump during 2000 and 2001, which affected their exports. some countries which were not badly affected by the asian crisis in 1997 and 1998, but which have very extensive exposure to technology production, such as singapore and taiwan, have suffered much more on this occasion than they did three or four years ago. but for east asia as a whole, the impact has not been as serious. in contrast to events during the asian crisis, macroeconomic policies on this occasion have acted in a way which has cushioned, rather than reinforced, the impact of global events. exchange rates have been allowed to decline, and monetary and fiscal policies have generally been eased. activity seems to have stabilised recently. semi - conductor prices have firmed appreciably, having collapsed over the first nine months or so of 2001. as an example of the roller - coaster ride producers in this area have experienced, consider the price of memory modules published by a web - site called dramexchange. com. in october 2000, the price quoted for a 128mb sdram module was about us $ 10. by october 2001, it had fallen to us $ 1. some of the fall was, no doubt, the decline over the ( very short ) life span of high - technology components with which we are familiar – driven by productivity improvement and competition. however, much of the fall presumably reflects the cyclical dynamics. over the past few months, prices have risen to around us $ 3. 50. it is encouraging for the small east asian countries to see this, and to see hopeful signs of expansion in the united states, which remains such a powerful force driving the business cycle for externally oriented economies. in europe, growth slowed noticeably in 2001. however, in some surveys one can see very early signs of what should turn out to be an improvement in economic conditions over the year ahead. japan, unfortunately, is in quite a different position. japan was affected by the tech sector slump, but it is also afflicted with very powerful forces at work in its domestic economy. deflating asset prices, associated pressure on corporations and banking sector asset quality, and generalised price deflation in producer prices and even consumer prices, make for a very difficult situation. these dynamics have been in operation for some years, but appear to have intensified over the past year or so. conventional macroeconomic policies have been pushed to their limits. structural reform is necessary but will be painful in the short term. while attention has been (