From Main Street to Wall Street: How the Economy Influences Stock Markets and What Investors Should Know
Jesper Rangvid
Published:
2021
Online ISBN:
9780191898549
Print ISBN:
9780198866404
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From Main Street to Wall Street: How the Economy Influences Stock Markets and What Investors Should Know
Jesper Rangvid
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Jesper Rangvid
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49–58
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Published:
January 2021
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Rangvid, Jesper, 'Drivers of stock returns', From Main Street to Wall Street: How the Economy Influences Stock Markets and What Investors Should Know (
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Abstract
This chapter demonstrates how we can decompose stock returns into three underlying ‘drivers’:Yield, growth, and valuation change.The chapter also examines the relative importance of each driver for stock returns.It shows that changes in valuations contribute only little to stock returns over very long horizons, but are of first-order importance for stock returns over shorter horizons. This insight will be important when we in Part V deal with expectations to future stock returns.When valuation changes cancel out in the long run, long-run returns will be given as the sum of the first two components. In simple terms, in the long run, stock returns are ‘yield plus growth’.
Keywords: Stock return decomposition, yield, growth, valuation, mean reversion
Subject
Financial Markets
Collection: Oxford Scholarship Online
From Main Street to Wall Street. Jesper Rangvid, Oxford University Press (2021). © Jesper Rangvid.DOI: 10.1093/oso/9780198866404.003.0004
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