DNRF Chair: Niels Joachim Gormsen

Financial markets play a decisive role in the economy. When firms decide whether to build a new factory, invest in green technologies, or pursue innovation, much depends on the cost of raising capital. This “cost of capital” is a central driver of economic activity – yet it is difficult to measure and often misunderstood.

In theory, firms should make investment decisions based on a clear assessment of their cost of capital. In practice, Niels Gormsen’s research shows that reality looks different. Firms’ perceptions often diverge from what economic models assume, and these differences matter. They affect how firms invest, how they respond to monetary policy, and how they engage with major societal challenges, such as climate change. By shedding light on how firms actually perceive and apply the cost of capital, we gain new insights into the dynamics linking financial markets, business decisions, and the broader economy.

Professor Gormsen’s research team also addresses another fundamental question: how stock markets and the cost of capital react to interest rates. When rates move, stock prices often follow – but not uniformly. A key to understanding this sensitivity lies in how far into the future companies’ value is concentrated. His research shows that this dimension – the “duration” of equity – is critical for explaining fluctuations in stock markets, and he is developing new methods to analyze it.

Together, these lines of research aim to uncover the mechanisms that connect financial markets, corporate decisions, and societal outcomes. The goal is to advance fundamental knowledge of how the cost of capital and interest rates shape investment and economic dynamics – and thereby play a crucial role in how the economy of the future takes form.