0 votes
asked ago in General Economics Questions by (290 points)
My hypothesis for the equity premium puzzle is that the U.S stock market greatly outperforms U.S government bonds, because there is a large influx of money from gross domestic savings (GDP - final consumption) that goes into the stock market to demand higher prices. However, there is not a perfect correlation between gross domestic savings and the market cap for the U.S stock market, perhaps because there is variability in the ratio between the total amount of shares in the stock market and the total volume of the stock market, which may determine how much an influx of money into the stock market causes the overall market cap to change, since not all shares are being traded at once. For example, if there is a market cap of 10 billion dollars, and only 10% of the shares are being traded, and there is a 1 billion dollar influx of money from gross domestic savings to cause the stock prices to go up, then that may cause approximately a 10 billion dollar increase in the market cap, since the prices of the stock market are likely determined by the shares being traded in a given moment in time. That is why I want to find data on the ratio between the total issued shares of the stock market, and the total volume in the stock market, so that can be multiplied by the gross domestic savings to get what I hypothesize to be approximately equal to the actual market cap of the U.S stock market. My paper is titled "Hypothesis for Explaining the Equity Premium Puzzle and the Success of the U.S Stock Market" and the link to my paper is here: https://www.academia.edu/37944740/Hypothesis_for_Explaining_the_Equity_Premium_Puzzle_and_the_Success_of_the_U_S_Stock_Market

1 Answer

+1 vote
answered ago by (2.6k points)
Hello Mr. Dwyer.

I think that that is an interesting topic. I had never thought about that phenomena. Are you measuring the effect of a Trillion US dollars in the stock market capitalization? That would be an awesome information for policy issues.

I leave here the most realiable website in which you can find data. I'm sure you know it but I can't bring up a better one right now.
https://fred.stlouisfed.org/

I'll check your paper out when I have free time.
commented ago by (2.6k points)
I read your paper and I'm sure that there is a relation between gross domestic savings and market capitalization. In my opinion, savings feed the stock market again and again and there is a reward for that.

I saw that you searched on the website I gave you. I'm sorry I don't know a better one.

Good job.
commented ago by (290 points)
Thank you very much Mr. McConnell for your comments and for looking at my paper. I greatly appreciate it!

No worries about not finding another potential website.

Much appreciated,
Brennan
commented ago by (2.6k points)
Hello Mr. Dwyer.

I found the stock market traded on every year on FRED. You can use it for your study.  I'm working on a paper concerning the stock market: How it works from an engineer sight and how it will work on a economy in which supply and demand are matched to avoid business cycles. I have realized that when the stock market traded is about 1 trillion the stock market capitalization increases 1000 points (more or less). So, having in consideration that you were who gave me the idea of volume of stock traded and market capitalization, I would like to receive your help in a small section of my paper in which you can explain your insight about the issue. Contact me if you are interested, if not I promise to just touch the matter very slightly only if necessary.

Kind regards

Ryan McConnell.
commented ago by (2.6k points)
Hello Mr. Dwyer.

I'm sorry if I bother you. I finished my last paperwork. I talked about the stock market and how it adds extra consumption to the real economy. I used the stock traded and turnover ratio stock traded/market capitalization to calculate the return of equity investment in an economy in a full employment state. I didn't touch your new ideas so don't worry I didn't want to plagiarize your work in any way. Look for STOCK TRADED %GDP and TURNOVER RATIO STOCKTRADED/CAPITALIZATION on FRED. That can help you.

Kind Regards

Ryan McConnell.

PD: Let me know if you want to take a look at my new paperwork.
...