Working Paper: CEPR ID: DP14468
Authors: Dmitry Kuvshinov; Kaspar Zimmermann
Abstract: This paper studies trends and drivers of long-run stock market growth. Between 1870 and 1990, advanced-economy stock market capitalization grew in line with GDP. But over recent decades, a historically unprecedented expansion saw market cap to GDP ratios triple and remain persistently high. While most historical stock market growth was driven by issuances, this recent expansion was fuelled by rising equity prices. We show that the key driver of this structural break was a profit shift towards listed firms, with listed firm profit shares in both GDP and capital income doubling and reaching their highest levels in 146 years.
Keywords: stock market capitalization; equity issuance; corporate profits; wealth-to-income ratios; long-run trends
JEL Codes: E44; G10; N20; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| profit share increase (D33) | stock market capitalization (G10) |
| listed firm profits increase (H32) | stock market capitalization (G10) |
| stock prices increase (G12) | stock market capitalization (G10) |
| listed firm profit share in GDP increase (D33) | listed firm profits increase (L25) |
| equity issuances (G12) | stock market capitalization (G10) |
| profit share increase (D33) | GDP (E20) |