Market Wealth Research Articles

Stock Market Wealth and Entrepreneurship

Stock Market Wealth and Entrepreneurship

Business cycles, stock market wealth, and gambling at the racetracks

PurposeAs digital technologies expand access to new forms of legalized gambling, including sports betting and online gaming, it is important to assess the impact of macroeconomic and equity market outcomes on fund flows into gambling. The authors’ findings will be of interest to policymakers and the gambling industry, as various forms of gambling, including day trading, gain broad public acceptance.Design/methodology/approachThe authors examine the impact of macroeconomic forces, business cycles, and financial market wealth on gambling. The authors propose a nonlinear model linking aggregate gambling expenditures to macroeconomic, stock market, and gambling industry variables. The authors estimate the proposed model using nonlinear estimation procedures.FindingsThe authors find that price of wagering, incomes, and supply of gambling opportunities are the primary determinants of wagering demand. Aggregate wagering is negatively impacted by realized stock returns and market volatility, but rises during recessions.Originality/valueTo the best of the authors’ knowledge, the questions posed and addressed in this manuscript have not been addressed in prior literature.

Evolutionary finance: a model with endogenous asset payoffs

Evolutionary Finance (EF) explores financial markets as evolving biological systems. Investors pursuing diverse investment strategies compete for the market capital. Some “survive” and some “become extinct”. A central goal is to identify evolutionary stable (in one sense or another) investment strategies. The problem is analyzed in a framework combining stochastic dynamics and evolutionary game theory. Most of the models currently considered in EF assume that asset payoffs are exogenous and depend only on the underlying stochastic process of states of the world. The present work develops a model where the payoffs are endogenous: they depend on the share of total market wealth invested in the asset.

Long-Term Shareholder Returns: Evidence from 64,000 Global Stocks

We study long-run shareholder outcomes for more than 64,000 global common stocks during the January 1990 to December 2020 period. The majority, 55.2% of U.S. stocks and 57.4% of non-U.S. stocks, underperform one-month U.S. Treasury bills in terms of compound returns over the full sample. Focusing on aggregate shareholder outcomes, we find that the top-performing 2.4% of firms account for all of the $US 75.7 trillion in net global stock market wealth creation from 1990 to December 2020. Outside the United States, 1.41% of firms account for the $US 30.7 trillion in net wealth creation.

Business Cycles, Stock Market Wealth and Gambling at the Racetracks

Business Cycles, Stock Market Wealth and Gambling at the Racetracks

Stock Market Wealth and Entrepreneurship

Stock Market Wealth and Entrepreneurship

Stock Market Wealth and Entrepreneurship

Stock Market Wealth and Entrepreneurship

The Effect of Intellectual Capital on Firm Profitability and Efficiency: Evidence from Thai Listed Companies in the Agriculture and Food Industry

This article examines the effect of Intellectual Capital (IC) on the performances of selected Thai listed companies in the Agro and Food industry from 2017 to 2019. The sample consisted of 45 companies with 135 observations spanning three years. The Modified Value-Added Intellectual Coefficient (MVAIC) model was used to measuring IC, including capital employed, human capital, structural capital, and relational capital. Performance was measured using two distinct parameters: profitability and efficiency. The regression results revealed that MVAIC and its components (excluding relational capital) had a significantly positive impact on firm profitability. However, only capital employed affected firm efficiency. This study confirms that IC efficiency significantly enhances profitability. Therefore, firm managers or policymakers can use the MVAIC model to monitor and assess their assets and create business strategies to achieve a competitive advantage. Furthermore, this model might be used by investors and shareholders to make better investment decisions and evaluate a firm’s market wealth.

What goes around comes around: How large are spillbacks from US monetary policy?

Spillovers from US monetary policy entail spillbacks to the domestic economy. Applying counterfactual analyses in a Bayesian proxy structural vector-autoregressive model we find that spillbacks account for a non-trivial share of the slowdown in domestic real activity following a contractionary US monetary policy shock. Spillbacks materialise as a monetary policy tightening depresses foreign sales and valuations of US firms so that Tobin’s q/cash flow and stock market wealth effects impinge on investment and consumption. Net trade does not contribute to spillbacks because US monetary policy affects exports and imports similarly. Geographically, spillbacks materialise through advanced rather than emerging market economies.

Employee output response to stock market wealth shocks

This paper uses individual-level data linking stock investments with work performance to examine how changes in stock market wealth affect worker output. We document that a 10% increase in monthly income from stock market investments is associated with a decrease of 3.8% in the same investor's next-month work output. The negative output response is not driven by concurrent economic conditions and is unexplained by investor-specific liquidity needs. Consistent with the reference dependence interpretation, the response is short-lived and the effect is stronger when the total income has reached a reference income. Overall, our results highlight a novel channel of transmitting stock market fluctuation through labor supply.

Housing and stock market wealth effects in developing economies

Housing and stock market wealth effects in developing economies

Economic fluctuations and pseudo-wealth

Abstract What can explain the large changes in aggregate demand that occur in the absence of any seemingly corresponding shock to the underlying state variables of the economy? We show that macroeconomic volatility can arise from dispersions of beliefs among agents. Such dispersion gives rise to bets and other trades in speculative assets. Such trades give rise to pseudo-wealth, wealth that individuals believe they have on the basis of expectations of returns on these gambles. In the aggregate, when there are enough opportunities for trade and large enough dispersions in beliefs, this perceived wealth may be dangerously untethered to either market wealth or the real wealth of the economy. Given the increased dispersion in beliefs that naturally arises from unprecedented shocks, the theory of pseudo-wealth provides new understandings of both the origins of unanticipated fluctuations and their magnitude, markedly different from prevailing theories grounded in common knowledge and beliefs among individuals. This paper explores the empirical and theoretical underpinnings of pseudo-wealth, links the concept to observed macroeconomic fluctuations, and lays out a research agenda that might help us better understand the role of pseudo-wealth and the circumstances in which it is pronounced.

Wealth Inequality: A Hybrid Approach Toward Multidimensional Distributional National Accounts In Europe

This article proposes a practically feasible framework for compiling Multidimensional Distributional National Accounts (MDINAs) serving two functions: a comprehensive measure of (components of) net worth and their distribution, and a link to macroeconomic statistics. I break down 12 components of marketable wealth by wealth and income groups, and three functions of wealth for Austria, Finland, France, Germany, and Spain. MDINA complemented by summary indicators reveal large heterogeneity in the degree of inequality, and shed light on differences in the structure of wealth portfolios across and within countries. I combine data collected in the largely harmonized HFCS survey and adjust for remaining differences in survey modes regarding the treatment of the top tail using (Generalized) Pareto models estimated from rich lists or top wealth shares derived from tax data and leaked information on wealth held in offshore tax havens. Measured inequality increases strongest in countries where surveys refrain from appropriate top‐tail corrections.

REBUTTAL: The Market Portfolio Is Bigger Than You Think

The true opportunity set and hypothetical benchmark for investors is, and always has been, the aggregate portfolio of every asset in the world. This portfolio is very diverse and complex. To control risk and make the investor’s job more manageable, most of these assets have been excluded from institutional portfolios, which have instead focused on public equities and bonds. The endowment model opens up the investment process to the true opportunity set and makes it possible to earn returns from sources that have traditionally been closed to both institutional and individual investors. <b>TOPICS:</b>Portfolio theory, portfolio construction, foundations &amp; endowments, performance measurement <b>Key Findings</b> ▪ The true world market wealth portfolio is much larger than the total capitalization of public stock and bond markets. ▪ Active investors should consider the entire world market wealth portfolio, to the extent that it can be accessed, as their opportunity set. ▪ Alternative investments are not new and have been used by endowments and other investors over a long period of historical time.

The Global Market Portfolio

Two years after the global capital stock report of Gadzinski, Schuller, and Vacchino (2018) and 36 years after the world market wealth portfolio of Ibbotson, Siegel, and Love (1985), investors still lack a global composite portfolio benchmark that includes a broad spectrum of assets with weights in line with a fair representation of the stock of capital for each asset class. Despite ample evidence of the substantial use of alternatives and real assets in institutional portfolios, the authors argue that existing academic and practitioner attempts are still unable to provide a satisfactory approximation of the “true” global market portfolio. The authors fill this gap and provide two benchmarks: one for retail investors constrained by liquidity needs and one for institutional investors with access to illiquid assets. <b>TOPICS:</b>Portfolio construction, real assets/alternative investments/private equity, global markets, performance measurement <b>Key Findings</b> ▪ The authors provide two global market portfolio benchmarks, for retail and institutional investors, based on a measurable global capital stock, which includes 87 existing indices within 11 asset classes. ▪ Their investable global market portfolio is built with ETFs only and is therefore transparent and systematic. The total return index realizes a compounded annual average return of 4.7%, with a standard deviation of 10.1% during the period 2005 Q1–2020 Q2. ▪ Their noninvestable global market portfolio realizes a compounded average return of 5.9%, with a standard deviation of 6.3% and a maximum cumulative drawdown of 20%. Thanks to a better allocation of resources toward real assets, diversification is then achieved and makes their total return index an efficient long-term portfolio benchmark.

Stock Market Wealth and the Real Economy: A Local Labor Market Approach

We provide evidence of the stock market consumption wealth effect by using a local labor market analysis. An increase in local stock wealth driven by aggregate stock prices increases local employment and payroll in nontradable industries and in total, with no effect on employment in tradable industries. In a model of geographic heterogeneity in stock wealth, these responses imply an MPC of 3.2 cents per year and that a 20 percent increase in stock valuations, unless countered by monetary policy, increases the aggregate labor bill by at least 1.7 percent and aggregate hours by at least 0.7 percent two years after the shock. (JEL E21, E24, E52, G12, G51, R22, R23 )

Impact of oil price volatility on state-level consumption of the United States: The role of oil dependence

In this study, we analyse the impact of oil price uncertainty (as measured by an observable measure of oil price volatility, i.e. realised volatility) on United States state-level real consumption by accounting for oil dependency. We account for both the long- and short-run dynamics of the state-level consumption function using the panel Pooled Mean Group estimator. The analysis makes use of a novel dataset including housing and stock market wealth at the state level covering the quarterly period 1975:Q1 to 2012:Q2, supplemented with an annual dataset up to 2018. We simultaneously estimate the long-run relationship and short-run impact of oil price volatility at the state-level conditional upon their oil dependency. We find that the negative impact of volatility is most severe for the states of Wyoming, Alaska and New Mexico, while the negative impact is least for Illinois, New York and Nebraska. States with lower per capita income and consumption expenditure, notably in the Southeast and Southwest region of the country are exposed to be more vulnerable to the negative impact of adverse developments and uncertainty in the oil market, as they may have less access to a stock of wealth and other means as recourse. Heterogenous responses, therefore, necessitate additional state-level response besides the national response to oil uncertainty.

Wealth Creation in the US Public Stock Markets 1926–2019

This report quantifies long-run stock market outcomes in terms of the increases or decreases (relative to a T-bill benchmark) in shareholder wealth, when considering the full history of both net cash distributions and capital appreciation. The study includes all of the 26,168 firms with publicly traded US common stock since 1926. Although investments in the majority (57.8%) of stocks led to reduced rather than increased shareholder wealth, US stock market investments increased shareholder wealth on net by $47.4 trillion between 1926 and 2019. Technology firms accounted for the largest share—$9.0 trillion—of the total, but telecommunications, energy, and healthcare/pharmaceutical stocks created wealth disproportionate to the numbers of firms in the industries. The degree to which stock market wealth creation is concentrated in a few top-performing firms has increased over time and was particularly strong during the most recent 3 years, when five firms accounted for 22% of net wealth creation. These results should be of interest to any long-term investor assessing the relative merits of broad diversification versus narrow portfolio selection. <b>TOPICS:</b>Security analysis and valuation, performance measurement, wealth management, portfolio construction <b>Key Findings</b> ▪ Shareholders who took on the risk of investing in the public US stock markets between 1926 and 2019 were rewarded by an aggregate wealth increase of more than $47 trillion, as compared with a T-bill benchmark. ▪ The majority of individual stock investments led to decreased rather than increased wealth in the long run. Aggregate shareholder wealth creation is concentrated in a relatively few high-performing stocks. ▪ The degree to which stock market wealth creation is concentrated in a few firms has increased over time, and it was particularly strong during the most recent 3 years.

Stock market implications of Fed's balance sheet size

PurposeConsidering the relationship between the central bank balance sheet and unconventional monetary policy after the 2008 financial crisis, it is crucial to see how the unconventional monetary policy, given near-zero interest rates, affects future stock market performance. This paper analyzes the impact of the Fed's balance sheet size on stock market performance.Design/methodology/approachTo analyze the Fed's balance sheet size's long-term stock market implications, this paper uses the asset pricing framework of market return predictability such as Ordinary least squares (OLS) and Generalized method of moments (GMM) analysis.FindingsFindings in this paper suggest that the Fed's balance sheet size, deflated by asset market wealth, presents evidence of return predictability during 1926–2015 that is robust against standard controls. These results can be explained through the redistribution of risk and the wealth channels of monetary policy transmission. The changing balance sheet size of a central bank (1) affects systemic risk, yields and expectations and (2) signals the future direction of monetary policy and thus economic outlook.Research limitations/implicationsThe main implication of these findings is that policymakers should avoid a severe imbalance between a central bank's balance sheet size and assets market wealth.Originality/valueThe empirical evidence in this paper documents a century-old relation between the Fed's balance sheet size and US stock market return using the Fed's balance sheet data for the last 100 years and stock market returns from the Center for research in security prices (CRSP) database.

Economic Fluctuations and Pseudo-Wealth

What can explain the large changes in aggregate demand that occur in the absence of any seemingly corresponding shock to the underlying state variables of the economy? We show that macroeconomic volatility can arise from dispersions of beliefs among agents. These dispersions give rise to bets and other trades in speculative assets. Such trades give rise to pseudo-wealth, wealth that individuals believe they have on the basis of expectations of returns on these gambles. In the aggregate, when there are enough opportunities for trade and large enough dispersions in beliefs, this perceived wealth may be dangerously untethered from either market wealth or the real wealth of the economy. Given the increased dispersion in beliefs that naturally arises from unprecedented shocks, the theory of pseudo-wealth provides new understandings of both the origins of unanticipated fluctuations and their magnitude, markedly different from prevailing theories grounded in common knowledge and beliefs among individuals. This paper explores the empirical and theoretical underpinnings of pseudo-wealth, links the concept to observed macroeconomic fluctuations, and lays out a research agenda that might help us better understand the role of pseudo-wealth and the circumstances in which it is pronounced.