CORPORATE CROSS-OWNERSHIP AND MARKET AGGREGATES - OSLO STOCK-EXCHANGE 1980-1990

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.