How the Wealth Was Won: Factors Shares as Market Fundamentals

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

NBER Working Paper No. 25769
Issued in April 2019, Revised in May 2019
NBER Program(s):Asset Pricing, Economic Fluctuations and Growth, Monetary Economics

We provide novel evidence on the driving forces behind the sharp increase in equity values over the post-war era. From the beginning of 1989 to the end of 2017, 23 trillion dollars of real equity wealth was created by the nonfinancial corporate sector. We estimate that 54% of this increase was attributable to a reallocation of rents to shareholders in a decelerating economy. Economic growth accounts for just 24%, followed by lower interest rates (11%) and a lower risk premium (11%). From 1952 to 1988 less than half as much wealth was created, but economic growth accounted for 92% of it.

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Acknowledgments

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Document Object Identifier (DOI): 10.3386/w25769