Origins of Stock Market Fluctuations

64 Pages Posted: 17 Jan 2014 Last revised: 25 Feb 2024

See all articles by Daniel Greenwald

Daniel Greenwald

New York University (NYU) - Leonard N. Stern School of Business

Daniel Greenwald

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Martin Lettau

University of California - Haas School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Sydney C. Ludvigson

New York University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: January 2014

Abstract

Three mutually uncorrelated economic disturbances that we measure empirically explain 85% of the quarterly variation in real stock market wealth since 1952. A model is employed to interpret these disturbances in terms of three latent primitive shocks. In the short run, shocks that affect the willingness to bear risk independently of macroeconomic fundamentals explain most of the variation in the market. In the long run, the market is profoundly affected by shocks that reallocate the rewards of a given level of production between workers and shareholders. Productivity shocks play a small role in historical stock market fluctuations at all horizons.

Suggested Citation

Greenwald, Daniel and Greenwald, Daniel and Lettau, Martin and Ludvigson, Sydney C., Origins of Stock Market Fluctuations (January 2014). NBER Working Paper No. w19818, Available at SSRN: https://ssrn.com/abstract=2380468

Daniel Greenwald (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

Daniel Greenwald

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

77 Massachusetts Ave. E62-663
Cambridge, MA 02142
United States

Martin Lettau

University of California - Haas School of Business ( email )

Haas School of Business
545 Student Services Building
Berkeley, CA 94720
United States
5106436349 (Phone)

HOME PAGE: http://faculty.haas.berkeley.edu/lettau/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Sydney C. Ludvigson

New York University - Department of Economics ( email )

19 West 4th Street, 6th floor
New York, NY 10012
United States
212-998-8927 (Phone)
212-995-4186 (Fax)

HOME PAGE: http://www.econ.nyu.edu/user/ludvigsons/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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