How the Wealth Was Won: Factors Shares as Market Fundamentals

NBER Working Paper No. 25769

Issued in April 2019, Revised in June 2020

NBER Program(s):Asset Pricing, Economic Fluctuations and Growth, Monetary Economics



Why do stocks rise and fall? From the beginning of 1989 to the end of 2017, $34 trillion of real equity wealth (2017:Q4 dollars) was created by the U.S. corporate sector. We estimate that 43% of this increase was attributable to a reallocation of rewards to shareholders in a decelerating economy, virtually all of which came at the expense of labor compensation. Economic growth accounted for just 25%, followed by a lower risk premium (24%), and lower interest rates (8%). From 1952 to 1988 less than half as much wealth was created, but economic growth accounted for more than 100% of it.

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Document Object Identifier (DOI): 10.3386/w25769