The Origins of Stock Market Fluctuations
An exceptionally ambitious paper on drivers of stock markets changes over long time horizon. A must-read for my students in MSc Finance and certainly going on syllabus next year. Big paper, big conclusions.
"The Origins of Stock Market Fluctuations" by Daniel L. Greenwald, Martin Lettau, and Sydney C. Ludvigson (NBER Working Paper No. 19818, January 2014, http://www.nber.org/papers/w19818).
"Three mutually uncorrelated economic shocks that we measure empirically explain 85% of the quarterly variation in real stock market wealth since 1952."
This is an unbelievably strong statement. Traditionally, little attention is given "to understanding the real (adjusted for inflation) level of the stock market, i.e., stock price variation, or the cumulation of returns over many decades. The profession spends a...
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