DP14468 The Big Bang: Stock Market Capitalization in the Long Run
This paper studies trends and drivers of long-run stock market growth. Between 1870 and 1990, advanced-economy stock market capitalization grew in line with GDP. But over recent decades, a historically unprecedented expansion saw market cap to GDP ratios triple and remain persistently high. While most historical stock market growth was driven by issuances, this recent expansion was fuelled by rising equity prices. We show that the key driver of this structural break was a profit shift towards listed firms, with listed firm profit shares in both GDP and capital income doubling and reaching their highest levels in 146 years.