The Big Bang: Stock Market Capitalization in the Long Run

We study trends and drivers of long-run stock market growth in 17 advanced economies. Between 1870 and the 1980s, stock market capitalization grew in line with GDP. But over subsequent decades, an unprecedented expansion saw market cap to GDP ratios triple and remain persistently high. While most historical stock market growth was driven by issuances, this recent expansion was fueled by rising equity prices. We show that the key driver of this structural break was a profit shift towards listed firms, with listed firm profit shares in both GDP and capital income doubling to reach their highest levels in 146 years.

Keywords: stock market capitalization, equity issuance, corporate profits, wealth-to-income ratios, long-run trends

JEL Classification: E44, G10, N20, O16

Suggested Citation: Suggested Citation

Kuvshinov, Dmitry and Zimmermann, Kaspar, The Big Bang: Stock Market Capitalization in the Long Run (September 28, 2021). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3236076 or http://dx.doi.org/10.2139/ssrn.3236076