AgPa #24: Market Capitalization vs. GDP
The big bang: Stock market capitalization in the long run (2022)
Dmitry Kuvshinov, Kaspar Zimmermann
Journal of Financial Economics 145(2), 527-552, URL
This week’s AGNOSTIC Paper is admittedly not very practical but probably more relevant today than ever before. The authors examine the outstanding performance of equity markets since the end of the inflationary 1970s and early 80s. A regime shift that they call the big bang. There are some surprising results, especially beyond the general debate about steadily falling interest rates…
- The Big Bang: market capitalization detached from GDP growth after the 1980s
- Most of the Big Bang comes from higher stock prices
- Falling interest rates are surprisingly not the main driver
- Higher profitability of listed firms is much more important