DP14200 How the Wealth Was Won: Factor Shares as Market Fundamentals

Author(s): Daniel L. Greenwald, Martin Lettau, Sydney Ludvigson
Publication Date: December 2019
JEL(s): G10, G12, G17
Programme Areas: Financial Economics, Monetary Economics and Fluctuations, Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14200

We provide novel evidence on the driving forcesbehind 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.