Kuvshinov, D., & Zimmermann, K. (2018). The Big Bang: Stock Market Capitalization in the Long Run.

New data show that advanced-economy market cap to GDP ratios were constant between 1870 and 1990, tripled with a “big bang” in the 1990s, and remained high thereafter. The key driver of this structural break was a profit shift towards listed firms. The share of listed firms’ profits in both GDP and capital income has more than doubled since 1990, reaching its highest levels in the last 145 years. We further show that this profit shift was amplified by historically low equity discount rates, and that equity issuance made no contribution to the increase in market cap to GDP ratios. [Read More]