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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)

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.

Suggested Citation

  • Jakob B. Madsen, 2003. "The Macroeconomics of Share Prices in the Medium Term and in the Long Run," EPRU Working Paper Series 03-11, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:epruwp:03-11
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    File URL: http://web.econ.ku.dk/epru/files/wp/wp-03-11.pdf
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    References listed on IDEAS

    as
    1. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1295-1328.
    2. Lawrence H. Summers, 1981. "Taxation and Corporate Investment: A q-Theory Approach," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 67-140.
    3. Michael Bruno & Jeffrey D. Sachs, 1985. "Economics of Worldwide Stagflation," NBER Books, National Bureau of Economic Research, Inc, number brun85-1, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    share prices and dividends in the long run; share valuation; required share returns; macroeconomic factors;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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