Working Paper: CEPR ID: DP14200
Authors: Martin Lettau; Sydney Ludvigson; Daniel L. Greenwald
Abstract: We provide novel evidence on the driving forcesbehind the sharp increase in equity values over the post-war era. From thebeginning of 1989 to the end of 2017, 23 trillion dollars of real equitywealth was created by the nonfinancial corporate sector. We estimate that54% of this increase was attributable to a reallocation of rents toshareholders in a decelerating economy. Economic growth accounts for just24%, followed by lower interest rates (11%) and a lower risk premium(11%). From 1952 to 1988 less than half as much wealth was created, buteconomic growth accounted for 92% of it.
Keywords: No keywords provided
JEL Codes: G10; G12; G17
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| factor share shocks (D33) | reallocation of rents to shareholders (D33) |
| economic growth (O49) | increase in equity values (G12) |
| lower interest rates (E43) | increase in equity values (G12) |
| declining risk premia (G19) | increase in equity values (G12) |
| factor share shocks (D33) | average annual log return on equity (G12) |
| reallocation of rents to shareholders (D33) | increase in equity values (G12) |