Is There a Link between GDP Growth and Equity Returns?

10 Pages Posted: 12 Nov 2010  

MSCI Inc.

MSCI Inc.

Date Written: May 13, 2010

Abstract

The analysis of a possible positive relationship between economic growth and stock market returns is interesting both theoretically and practically. Investors often wonder if they should assign higher weight to countries with higher economic performance, hoping that economic growth will eventually show up in equity returns. Although this relationship seems quite intuitive, historically long-run stock price growth has fallen short of GDP growth in many countries. In this bulletin, we use long-term equity data to analyze the steps leading from GDP to stock prices, and point out several factors that could explain why GDP growth is diluted before it can reach shareholders.

Keywords: Link Between GDP Growth and Equity Returns, Possible Positive Relationship between Economic Growth and Stock Market Returns, Long-Term Equity Data

Suggested Citation

Inc., MSCI, Is There a Link between GDP Growth and Equity Returns? (May 13, 2010). MSCI Barra Research Paper No. 2010-18. Available at SSRN: https://ssrn.com/abstract=1707483 or http://dx.doi.org/10.2139/ssrn.1707483

MSCI Inc. (Contact Author)

MSCI Inc.

88 Pine Street
2nd Floor
New York, NY 10005
United States

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