The Macroeconomics of Share Prices in the Medium Term and in the Long Run

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The Macroeconomics of Share Prices in the Medium Term and in the Long Run

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Jakob B. Madsen (Institute of Economics, University of Copenhagen)

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Jakob B. Madsen

Abstract

This paper develops a macro-model of share prices that predicts that the growth rates in real share prices and real dividends gravitate toward predictable constants in the long run, but fluctuate on approximately decennial frequencies due to movements in capital’s share in total income and the output-capital ratio. The model has important implications for medium-term and long-run movements in real share prices and dividends, required share returns, the effects of new technologies on share returns, share price valuation, and whether shares are less risky in the long run than in the short run. Using macroeconomic data over 130 years for 22 OECD countries, the data give support for the model.

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Publisher Info
Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 03-11.

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Length: 24 pages
Date of creation: Sep 2003
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Handle: RePEc:kud:epruwp:03-11

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Find related papers by JEL classification:
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing

This paper has been announced in the following NEP Reports:

NEP-ALL-2003-09-08 (All new papers)
NEP-MAC-2003-09-08 (Macroeconomics)

References listed on IDEAS
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Other versions:
- N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," Harvard Institute of Economic Research Working Papers 1922, Harvard - Institute of Economic Research. [Downloadable!]
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Other versions:
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Other versions:
- Eugene F. Fama & Kenneth R. French, . "Forecasting Profitability and Earnings," CRSP working papers 358, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
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Other versions:
- Eugene Fama & F. & Kenneth R. French, . "The Equity Premium."," CRSP working papers 522, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
John Y. Campbell & John Cochrane, 1999. "Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 205-251, April. [Downloadable!] (restricted)
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Other versions:
- Jakob B. Madsen & E. Philip Davis, 2004. "Equity Prices, Productivity Growth, and the 'New Economy'," EPRU Working Paper Series 04-05, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
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- Jakob B Madsen & E Philip Davis, 2003. "Equity Prices, Productivity Growth, And ‘The New Economy’," Public Policy Discussion Papers 03-04, Economics and Finance Section, School of Social Sciences, Brunel University. [Downloadable!]
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Other versions:
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