STOCK MARKET CAPITALIZATION: LONG-TERM TRENDS AND DEVELOPMENT FACTORS

Abstract

The article assesses the long-term trends of stock market development measured as the share of capitalization in GDP in 18 developed countries over the time horizon of 1880-2020. We show that there were three periods of stable capitalization growth in 1880-1913, 1950-1969 and 1980-1999 between long transitional periods of stagnation and even decline in this indicator. Over the long-term horizon, capitalization depends on changes in economies and the level of state involvement. Fundamental changes in the models of capitalism are caused by the progress of technologies and methods of organizing business; the accumulation of disproportions and contradictions in the economy; and geopolitical and other factors. The growth of capitalization during periods of sustainable development of capitalism is largely due to the opportunities for companies to attract new capital through share issuance and capital gain. This being the case, the influence of capital gain becomes predominant. It is shown that, over time, the role of country differences in explaining the level of capitalization decreases with an increase in the importance of a unified set of macroeconomic, demographic and financial variables. The factors that have a positive effect on capitalization at all historical stages are the size of GDP per capita and the real return on stocks. The share of rural residents in the total population, as well as the yield of government bonds and the level of budget expenditures, which characterize the degree of state involvement in the economy, had a negative impact on capitalization. Factors such as openness of the economy, demographic burden on the population, inflation and level of public debt had a different effect on capitalization in different historical periods, depending on the combination of certain conditions.