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
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.
|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.