How the Wealth Was Won: Factor Shares as Market Fundamentals

Daniel L. Greenwald · Martin Lettau A · Sydney C. Ludvigson

28 citations0/0 files storedJournal of Political Economy

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Financial Markets and Investment Strategies Financial Analysis and Corporate Governance Economic Theory and Policy

Abstract

Why does the stock market rise and fall? From 1989 to 2017, the real per capita value of corporate equity increased at a 7.2% annual rate. We estimate that 40% 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% of the increase, followed by a lower risk price (21%) and lower interest rates (14%). The period 1952–88 experienced only one-third as much growth in market equity, but economic growth accounted for more than 100% of it.

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1999By Force of Habit: A Consumption‐Based Explanation of Aggregate Stock Market Behavior 2000Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles 1988The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors 1993The journal of financial economics 1996A YIELD‐FACTOR MODEL OF INTEREST RATES 2011Presidential Address: Discount Rates 2001Consumption, Aggregate Wealth, and Expected Stock Returns 2013The Global Decline of the Labor Share*

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