Scandinavian Working Papers in Economics
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Department of Economics, Stockholm University Research Papers in Economics, Department of Economics, Stockholm University

No 2015:5:
Stocks and GDP in the long run

Annika Alexius () and Daniel Spång ()

Abstract: Previous studies have documented long run equilibrium relationships between e.g. stock prices and labour income or dividends and consumption. In general equilibrium, output, consumption, labour income, stock prices, and dividends are endogenous variables that are determined by the same stochastic productivity trend. We show that stock prices are cointegrated with domestic and foreign output in the G7 countries, which arguably is a more fundamental relationship than the connection between consumtion and dividends.

Keywords: Stock prices; GDP; Long run risks; Cointegration; (follow links to similar papers)

JEL-Codes: E44; G12; (follow links to similar papers)

11 pages, June 26, 2015

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