How the Wealth Was Won: Factor Shares as Market Fundamentals

Daniel L. Greenwald, Martin Lettau and Sydney C. Ludvigson

Journal of Political Economy, 2025, vol. 133, issue 4, 1083 - 1132

Abstract: Why does the stock market rise and fall? From 1989 to 2017, the real per capita value of corporate equity increased at a 7.2% annual rate. We estimate that 40% of this increase was attributable to a reallocation of rewards to shareholders in a decelerating economy, primarily at the expense of labor compensation. Economic growth accounted for just 25% of the increase, followed by a lower risk price (21%) and lower interest rates (14%). The period 1952–88 experienced only one-third as much growth in market equity, but economic growth accounted for more than 100% of it.

Date: 2025
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