How the Wealth Was Won: Factors Shares as Market Fundamentals

Daniel L. Greenwald; Martin Lettau; Sydney C. Ludvigson

doi:10.3386/w25769

How the Wealth Was Won: Factors Shares as Market Fundamentals

Daniel L. Greenwald, Martin Lettau & Sydney C. Ludvigson

Working Paper 25769

DOI 10.3386/w25769

Issue Date April 2019

Revision Date April 2021

Why do stocks rise and fall? From 1989 to 2017, $34 trillion of real equity wealth (2017:Q4 dollars) was created by the U.S. corporate sector. We estimate that 44% of this increase was attributable to a reallocation of rewards to shareholders in a decelerating economy, primarily at the expense of labor compensation. Economic growth accounted for just 25%, followed by a lower risk price (18%), and lower interest rates (14%). The period 1952 to 1988 experienced less than one third of the growth in market equity, but economic growth accounted for more than 100% of it.

This paper supplants an earlier paper entitled "Origins of Stock Market Fluctuations." We are grateful to Simcha Barkai, John Y. Campbell, Andrea Eisfeldt, Valentin Haddad, Ralph Koijen, Edward Nelson, Annette Vissing-Jorgensen, and Mindy Xiaolan for helpful comments, and to seminar participants at the October 2020 NBER EF&G meeting, 2020 Women in Macro conference, the 2021 American Finance Association meetings, the January 2021 NBER Long Term Asset Management conference, the Federal Reserve Board, the Harvard University economics department, the HEC Paris Finance department, the Ohio State University Fisher College of Business, the University of California Berkeley Haas School of Business, the University of Chicago Booth School of Business, the University of Michigan Ross School of Business, and the University of Minnesota Carlson School for helpful comments. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
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How the Wealth Was Won: Factors Shares as Market Fundamentals

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