Scandinavian Working Papers in Economics

Research Papers in Economics,
Stockholm University, Department of Economics

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

Annika Alexius () and Daniel Spång ()
Additional contact information
Annika Alexius: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden
Daniel Spång: The Fourth Swedish National Pension Fund, Postal: Regeringsgatan 30-32, 103 61 Stockholm, Sweden

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

JEL-codes: E44; G12

11 pages, June 26, 2015

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