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Economic Growth and Equity Returns

Jay R. Ritter

University of Florida - Department of Finance, Insurance and Real Estate

November 1, 2004

EFA 2005 Moscow Meetings Paper

It is widely believed that economic growth is good for stockholders. However, the cross-country correlation of real stock returns and per capita GDP growth over 1900-2002 is negative. Economic growth occurs from high personal savings rates and increased labor force participation, and from technological change. If increases in capital and labor inputs go into new corporations, these do not boost the present value of dividends on existing corporations. Technological change does not increase profits unless firms have lasting monopolies, a condition that rarely occurs. Countries with high growth potential do not offer good equity investment opportunities unless valuations are low.

Number of Pages in PDF File: 20

Keywords: Economic Growth, Equity Premium Puzzle

JEL Classification: E44, F30, G15, N14, O16, O33, O40

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Date posted: February 27, 2005  

Suggested Citation

Ritter, Jay R., Economic Growth and Equity Returns (November 1, 2004). EFA 2005 Moscow Meetings Paper. Available at SSRN: https://ssrn.com/abstract=667507 or http://dx.doi.org/10.2139/ssrn.667507

Contact Information

Jay R. Ritter (Contact Author)
University of Florida - Department of Finance, Insurance and Real Estate ( email )
P.O. Box 117168
Gainesville, FL 32611
United States
(352) 846-2837 (Phone)
(352) 392-0301 (Fax)
HOME PAGE: http://bear.cba.ufl.edu/ritter
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