MIT Sloan School of Management
100 Main Street, E62-641
Cambridge, MA 02142
Institutional Affiliation: Massachusetts Institute of Technology
NBER Working Papers and Publications
|April 2019||How the Wealth Was Won: Factors Shares as Market Fundamentals|
with Martin Lettau, Sydney C. Ludvigson: w25769
Why do stocks rise and fall? From the beginning of 1989 to the end of 2017, $34 trillion of real equity wealth (2017:Q4 dollars) was created by the U.S. corporate sector. We estimate that 43% of this increase was attributable to a reallocation of rewards to shareholders in a decelerating economy, virtually all of which came at the expense of labor compensation. Economic growth accounted for just 25%, followed by a lower risk premium (24%), and lower interest rates (8%). From 1952 to 1988 less than half as much wealth was created, but economic growth accounted for more than 100% of it.
|January 2014||Origins of Stock Market Fluctuations|
with Martin Lettau, Sydney C. Ludvigson: w19818
Three mutually uncorrelated economic disturbances that we measure empirically explain 85% of the quarterly variation in real stock market wealth since 1952. A model is employed to interpret these disturbances in terms of three latent primitive shocks. In the short run, shocks that affect the willingness to bear risk independently of macroeconomic fundamentals explain most of the variation in the market. In the long run, the market is profoundly affected by shocks that reallocate the rewards of a given level of production between workers and shareholders. Productivity shocks play a small role in historical stock market fluctuations at all horizons.