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

Jakob Madsen

No 03-11, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

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.

Keywords: share prices and dividends in the long run; share valuation; required share returns; macroeconomic factors (search for similar items in EconPapers)
JEL-codes: E44 G12 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2003-09
New Economics Papers: this item is included in nep-mac
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