There is, though, one aspect of this that's been largely overlooked. The lack of an obvious risk-free rate, says economic consultant John Llewellyn, puts conventional valuation theory into "disarray".
The reason for this is simple. The standard way of valuing an asset is to forecast its future cash flows, and then discount them by a risk-free rate plus a risk premium. But if there's no obvious risk-free rate, this method becomes trickier. Of course, valuation has always been an imprecise art because of the uncertainties surrounding future cash flows and the choice of appropriate risk premium. But now we have the additional uncertainty of what risk-free rate to use.
But does this matter? Two things suggest not.
First, the dividend yield on the All-Share index decoupled from index-linked yields 10 years ago; the latter fell but the dividend yield didn't. This could be because investors reduced their expectations for dividend growth or raised their require risk premium. But it might also be partly because they stopped using index-linked yields as a risk-free rate in valuing shares, and used instead a higher, 'shadow' interest rate.
Secondly, it's not obvious that conventional valuation methods were very helpful even when the risk-free rate wasn't in so much doubt. Some economists think that longer-term corporate cash flows are inherently unpredictable, which renders valuing them pointless. Perhaps, then, the concept of value has been an illusory comfort which has given us the false impression of certainty in an uncertain world.
Some of us have long suggested that investors ditch the idea of value and think instead of equities as bets or, if you prefer, state-contingent securities. In some states of the world they pay off well, and in others badly. We then consider how worried we are by those various states - where this is a function of the subjective probability of the state and our exposure to it - and diversify accordingly. We don't need an idea of value to do this.
There is, though, one way in which the collapse of traditional valuation theory does matter - for corporate takeovers.
A company thinking about a big takeover is at a disadvantage to we ordinary investors. We can respond to uncertainty about the value of particular companies simply by diversifying. But managers approaching a big merger don't have this luxury. Instead, they must get the valuation of the target right, or at least nearly so. Without a stable risk-free rate, they cannot do this. Worse still, uncertainty about future bond yields exposes them to big refinancing risk - the danger that the cost of the debt taken on to acquire the company will rise sharply in a few years' time.
This explains an otherwise odd fact - that merger activity has slumped. Official figures show that last year, UK firms bought only 388 companies - less than half the number they were buying before the crisis. I say this is odd because you'd ordinarily expect a combination of low interest rates, modest price-earnings ratios and high corporate cash piles to unleash a merger boom. Why hasn't this happened? Uncertainty about future risk-free rates is an obvious reason.
Is this lack of mergers a bad thing? It certainly is for investment bankers and corporate lawyers. But try to dry your eyes, dear reader. For ordinary investors it might not be such a bad thing. Mergers don't often pay off well for acquiring companies and sometimes - as with RBS's buying of ABN Amro - they can be catastrophic disasters.
In this sense, perhaps the added difficulty of valuing companies is actually a good thing, insofar as it might be helping to protect us from destructive merger activity.
